Defining Transparency in the Healthcare Supply Chain

Healthcare Purchasing News • Eric O'Daffer, Joe Dudas

"If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it."


- Albert Einstein

Any modern-day article written on the subject of healing the healthcare system is incomplete without mention of the subject of transparency or lack thereof.

But what is transparency? Transparency has been referenced regarding quality, prices charged to patients, physician compensation, supply costs and more. With such a broad application it almost starts to feel like one of those great-sounding but overused consultant words, such as transformation, innovation, synergy, collaboration or alignment. Our purpose is to clarify what transparency means to the healthcare supply chain and why it is so important - or at least shed some light on the subject.

Since we believe innovation is what is needed to achieve transparency, we studied problem-solving techniques being used by leading innovators. What we found to be common among various innovation methods is that you must first clearly define what you believe to be the root problem. InnoCentive is the global leader in crowdsourcing innovative problems to the world's smartest people. They believe that innovation and problem-solving need to evolve in order to meet the challenges of the 21st century.

Their methodology is called "Challenge-Driven Innovation," and interestingly enough, their core process focuses not on how to solve a problem but instead how to describe one. The "Challenge-Driven Innovation" process is broken down into four basic steps:

  1. Clarifying the need,
  2. Justifying the need,
  3. Researching the problem, and
  4. Creating the problem statement.

We are using this process to organize the remainder of this article in hope that it would lead us to our objective.

Clarifying The Need

Why does the healthcare supply chain need a transparency solution? One might start with outlining the challenges of the future, namely a demand for improved quality and outcomes at a lower cost. Today, the U.S. domestic healthcare system spends more than any other developed nation, yet many argue that better quality can be found elsewhere. This perception, coupled with the reality of the Affordable Care Act (ACA), has both providers and suppliers looking to their supply chain for new solutions. Most are anticipating reimbursement cuts of 20 percent to 30 percent over the next 10 years.

The most basic need may be for improved information and direct access to talent that have the capability to use the information and drive better decisions. It is fully recognized that only when all parties share information and work together can true optimization be achieved. All stakeholders, and most importantly the patient, benefit from a truly optimized system. While broad information and access is needed, many feel that price transparency and rationale are at the heart of the problem. Few understand the significant variation across hospitals in the pricing of commodities and devices It is likely that we need to break down barriers in this area to have the kind of trust necessary to move beyond transactional relationships.

Justifying The Need

The culture of healthcare supply chain is likely its biggest obstacle. While improving every day, today's supply chain contains too many participants that are highly siloed, controlling, self-centered and filled with mistrust. It kind of resembles a coach talking to one of his star players who continues to only think of their own statistics. The coach asks, "Is it aptitude or apathy?" With the player responding, "I don't know and I don't care."

At the heart of the problem are our various business strategies that reflect a "what's in it for me" mentality. We would suggest that to address transparency we will first need to address our collective business goals and reorient to reflect a new attitude of "what is in it for we," including the patient and the payer.

We have to understand and we have to care that all parts of the supply chain are working to their fullest potential. Only then will the healthcare supply chain operate in a manner where it can deliver as a leader as opposed to follower. Tomorrow's supply chain must include shared objectives, shared business intelligence and shared resources that are all aligned back from the point of patient care to manufacturing.

Researching The Problem

Necessity is the mother of invention, and at long last that necessity is now driving healthcare to collaborate like other industries have in order to be more competitive. Research on experiences from other more developed industry supply chains like retail, aerospace and automotive point to a broad sharing of information related to demand, clear product specifications, data standards and visibility of inventory through the channel.

Researching transparency in healthcare starts with establishing a common definition. We know the challenges of our opaque current state, with 93 percent of companies indicating in a recent Gartner study that there is a lack of trust with their trading partners. For the myriad reasons discussed earlier, the lack of trust exists, but when asked what transparency in healthcare supply chain is we get a wide range of responses.

Strategic Marketplace Initiative (SMI), a consortium of healthcare supply chain executives, recently launched a much-needed "strawman" industry initiative to define transparency in healthcare. The current working definition that is in the feedback phase in the SMI process is:

Supply chain transparency provides visibility from the point of patient care back through the healthcare supply chain through the manufacturer. This enhanced visibility includes clinical selection criteria, patient outcomes, reimbursement, demand signals, inventory levels, product numbering and uniform product descriptions along with standard classification, clear pricing and terms related to products utilized in providing patient care.

This type of broad definition shows us how far our industry has to go; and yet, in talking with manufacturers and healthcare providers it is clear that, although inconsistent, we have pockets of transparency in local relationships. Manufacturers/service providers and IDNs are sharing information, aligning goals and taking risks together where there is a foundation of trust.

Systematically designing the system through wide-reaching strategies to address the initiatives defined earlier will go a long way towards an answer. Research shows a strong desire to be more transparent or at least exhibit characteristics that are clearer. Pilot relationships that demonstrate that companies can share information and strengthen performance with trading partners while lowering costs and aligning to better outcomes will allow leaders to demonstrate the value of transparency.

Create The Challenge

The problem with transparency is actually many problems, but the solution likely starts with a cultural change-building trust. Typically, at this point in the "Innovation" methodology we would ask the following questions:

  • What requirements must a solution meet?
  • Which problem solvers should we engage?
  • What information and language should the problem statement include?
  • What incentives do solvers need?
  • How will solutions be evaluated and success measured?

As opposed to answering each question, we thought we might conclude with a real-world example from a best seller book called "Wikinomics" that might closely resemble where we are heading as an industry. A few years back, a Toronto-based gold mining company was in trouble. The company's 50-year-old mine was dying without any substantial evidence of new deposits. The company needed a miracle, which is why they decided to do something unheard of in this industry (Industry Rule No. 1: Don't share your proprietary data). Instead of imprisoning all of their information, they published it on the Web and challenged the world to go prospecting.

As a result, more than 1,000 virtual prospectors from 50 countries got busy. Within weeks, graduate students, management consultants, mathematicians and a virtual army of geologists made submissions to the company. There were capabilities never seen before in the industry. The result was an astounding 8 million ounces of gold. Overnight, the $100-million company transformed itself into a $9-billion industry giant. As for the shareholders, $100 invested in 1993 is now worth $3,000. 

Over the next decade, the challenges for the healthcare supply chain will be significant, and the sense of urgency even greater. Some will retreat and seek a very defensive strategy, designed to protect market share through punitive tactics, implementing data-sharing "gag" clauses and invoking penalties through price increases and/or legal action. History shows that this will not work in the long run, and these organizations are sure to lose.

The lesson for us is clear: The old, monolithic culture of value creation cannot compete in today's real world. Winning companies today have open and porous boundaries and compete by reaching outside their walls to harness every conceivable resource, skill and intellect possible. We are now in the age of "networked intelligence" where information is not something that is admired, guarded or feared -- it is something that is shared and utilized freely.



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