With the right approach, supply chain management can result in financial stability and improved patient outcomes at healthcare facilities.

Compared to most industries in America, the healthcare supply chain is broken. It is one of the only industries in which the key decision-makers for the majority of supply usage - pharmacists, for example - have no stake in the cost of the goods they use. The healthcare supply chain is plagued by misalignment, high costs for healthcare providers and heavy dependence on third parties, such as national group purchasing organizations (GPOs), distributors and manufacturers. Most healthcare providers have been unwilling to challenge the traditional model for fear of the associated risk - until now.

St. Louis-based Sisters of Mercy Health System’s supply chain was much like those of many healthcare organizations. Even though the health system did not control the service, quality or price of the supply chain, it paid for every segment. Mercy decided to take greater control and refine the traditional supply chain model to better align with its clinical service expectations. In 2002, Mercy created a new supply chain division - Resource Optimization & Innovation (ROi) - charged with optimizing the supply chain.

ROi analyzed each element of the supply chain. Non-contributing steps or entities were eliminated. Essential steps with out-of-line cost-to-value equations were internalized or optimized. ROi internalized the traditional revenue streams of intermediaries, converting a traditional cost center into a profit center, while developing a service platform targeted specifically for Mercy’s needs.

ROi helped consolidate the supply chain throughout Mercy by establishing a common materials management software solution with a common item file. ROi also centralized and consolidated the redundant purchasing and item file maintenance efforts. In addition, it created a focused and aligned group purchasing organization, a dedicated clinical and operational consulting group, and an internally-owned and managed Consolidated Services Center (CSC) that provides centralized purchasing, customer service, inventory management and warehousing/distribution, including a transportation fleet supporting the nine service units in the Mercy health system. These changes improved supply chain responsiveness, resulting in 99 percent next-day, first-time fill rates in contrast to the 85-90 percent other commercial distributors historically achieved.

ROi streamlined the receiving process at Mercy’s hospitals by combining deliveries of various products in a single delivery via a flexible, private transportation fleet. ROi eliminated third-party distributor mark-up fees by directly purchasing from manufacturers. In addition, the CSC’s ample warehouse capacity permits bulk purchasing discounts for economies of scale.

A Call to Action
The true clinical impact of supply chain ownership and control became clear when more than 3,000 nursing level stock-outs were eliminated each week. To nurses, this meant fewer distractions, allowing them to spend more time caring for patients.

ROi identified additional ways in which the supply chain could contribute to patient care. The division made it a mission to eliminate or reduce activities that:

• Distracted from providing the best patient care possible
• Added unnecessary cost to the delivery of care
• Possibly created an unsafe or unproductive work environment

Prior to ROi’s efforts to take on ownership of the healthcare supply chain, Mercy was researching ways to improve patient care and safety based on the findings of the landmark Institute of Medicine (IOM) report, To Err is Human. The report, released in 2000, was an indictment of the number of medication errors that occur at hospitals nationwide and the impact it has on patient safety and healthcare costs.

Analysis of the IOM study led Mercy to conclude that the largest potential for improving patient safety was preventing mistakes made at the patient bedside. ROi’s initial research on medication safety revealed disturbing findings:

• Bedside scanning technology was available to improve patient safety, but only 1 percent of hospitals utilized the technology (the number has grown to only 4 percent today)
• Bar-coded medication in single dose form is essential to bedside medication verification, but less than 40 percent of medications are commercially available in unit dose, bar-coded form
• Pharmaceutical repackaging technology is available, but automated equipment is very expensive. Manual technology is very labor intensive and prone to inconsistencies and error. Less than 10 percent of hospitals use automated repackaging technology
• Repackaging quality varies greatly with hospital-based repackaging efforts
• Lengthy licensure processes and heavy regulatory burdens create a disincentive for commercial companies to repackage low-volume medications, creating a gap in necessary medication availability

Making it a Reality
Mercy attacked the effort with a two-pronged offensive: a consolidated central repackaging and distribution infrastructure, and a hospital-based automated dispensing and safety-verification infrastructure.

The system was designed using a continuous-replenishment model, integrating the hospital-based medication cabinets with the CSC-based automated repackaging equipment to reduce or eliminate error-prone manual processes.

At the hospital, nurses go to an automated medication-dispensing cabinet and electronically select the patient’s ID. The system automatically acknowledges the medication order and opens the appropriate drawer. The nurse selects the needed medications and acknowledges the selection. The cabinetry electronically records the transaction and builds a replenishment order for later use. The nurse takes the medication to the patient’s bedside and scans his or her ID badge, the patient’s arm band and the bar-coded medication. The system evaluates the transaction and either acknowledges the administration as valid or alerts the nurse of a potential medication error. Medication alerts are handled according to hospital protocol and is archived for later analysis by qualified clinical experts.

Every night at the CSC, automated repackaging machines, which house more than 500 different medications each, automatically poll the hospital-based medication cabinets and download the replenishment order. Based on the quantity needed, the automated repackaging equipment produces unit-dose, bar-coded medications for shipment to the hospital. This replenishment order is merged with other manually repackaged or labeled medications (liquids, vials, syringes) and sent in sealed totes to each hospital, with the exact medication cabinet location indicated on electronically generated routing labels. The totes are loaded on a private fleet of trucks and routed to the appropriate hospital, floor and medication cabinet where pharmacy technicians manually replenish the drawers.

The Results
Results of the $30 million technology investment and supply chain optimization have paid dividends far beyond original expectations. The program has instilled great pride throughout the Sisters of Mercy Health System and has indelibly linked a non-traditional support entity directly to the improvement of patient care. The most significant documented benefits for patients are:

• “Wrong dose,” “wrong patient” and “wrong route” categories of medication errors have been virtually eliminated.
• More than 178,000 potential medication events and more than 17,800 drug events that actually harm patients are avoided annually.
• Time to complete the medication administration process is reduced by 33 percent, providing nurses with more time for direct patient care activities.
• Pharmacist time associated with distributive functions has been significantly reduced while doubling the time associated with clinical activities on the hospital floor.
• The inherent benefits of providing tools to assure a safe medication environment has helped Mercy recruit the best and the brightest nurses.

Operational improvements are:

• Bedside scanning is fully operational in all of Mercy’s planned facilities
• Approximately 3,000 acute care patient beds are covered by bedside scanning and verification capabilities
• The shift of pharmacy activities from distributive to clinical functions has provided time for more than 15,000 clinical pharmacy interventions per month, resulting in documented hard-cost savings of more than $2.7 million per year
• Mercy has achieved quantified cost avoidance of more than $13.6 million annually by eliminating or reducing lab testing, non-invasive procedures, additional treatment, invasive monitoring and procedures, increased length of stay and transfers to ICU

The model has proven that healthcare providers can take control of their supply chain and has opened doors for new supply chain talent in a growing industry traditionally dominated by insiders. Its success has validated that risk-taking by challenging traditional models is rewarded when well executed.

Vance Moore is president of Resource Optimization & Innovation, a supply chain division of Sisters of Mercy Health System. It is headquartered in St. Louis, with a 100,000-square-foot distribution center in Springfield, Mo. For more information, visit www.mercy.net. Moore can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it