A potential cure for the ailing health care sector
Author: Étienne Poulin, CMA
Health care absorbs such a large proportion of public finances that it’s not surprising the health system hasn’t escaped cutbacks. For instance, the health sector accounts for about a third of the Quebec government’s budget and about 7.5% of the province’s GDP.
There’s a pressing need to review health care practices to improve hospital operations and bolster their efficiency and effectiveness. Improved operations should provide better cost control, while maintaining the quality of care delivered to the public. Support processes are excellent targets because they don’t necessarily have a direct impact on the quality of care provided. Hospital logistics is one such process, the goal of which is to efficiently deliver medical supplies and pharmaceutical products to the final consumer, the patient.
Comparative analysis, or benchmarking, is an improvement process that compares practices used by several organizations to identify best practices. Organizations use this management tool to identify both the problem areas in their business processes and opportunities for improvement.
A benchmarking process targeting hospital logistics was recently initiated in five Quebec hospitals. The aim of the study was to develop and test the validity of an analytical model and data collection tool tailored to hospital logistics. With these tools, the costs of current hospital practices and their impact on the quality of care could be evaluated. Eventually this could offer a clear set of benchmarked best practices for large hospitals.
A poorly understood and often unappreciated process, logistics accounts for a sizeable portion of a hospital’s operating budget. Studies have shown that from 30% to 46% of hospital expenses are invested in various logistical activities, and that almost half of the costs associated with supply chain processes could be eliminated through the use of best practices.
In hospitals, logistics cover not just support services such as purchasing, stores and the pharmacy, but also health care services such as patient care units and operating rooms. Many activities that could be carried out by support personnel are often on the list of duties performed by health care personnel. The result is that the internal supply chain within a hospital is often highly fragmented.
Logistics is a complex process. The people involved vary with the type of products in question: for example, stores manage medical and office supplies; the pharmacy looks after pharmaceutical products; and food services manages the procurement and processing of food products.
Two major management methods are applied by hospitals. Certain products are managed and stored in the hospital’s stores (or pharmacy) before being distributed to specific departments: these are called inventory products. Other items are ordered directly by specific departments from the purchasing department, which oversees the purchases as needed and delivers them upon receipt to the departments: these are non-inventory or direct purchase products. The latter are generally not stored in the institution’s stores.
Pharmaceutical products, meanwhile, are divided under two main headings: general products and prescription drugs. The inventory and non-inventory distinction doesn’t apply to pharmaceuticals because all requisitions must go through the pharmacy.
Figure 1 summarizes the main players and their role in the replenishment of two critical items, medical supplies and pharmaceutical products. These relationships may differ at certain institutions. The pharmacy and stores order their products directly from suppliers in some cases. Yet, in other hospitals, ordering is taken care of by a purchasing department.
Figure 1 also shows the people who store medical supplies and pharmaceutical products, and indicates the two types of flows between them: the flow of materials and information. These two flows were studied in the project to benchmark hospital logistics processes.
To benchmark hospital performance, performance measures for material and information flows had to be established. However, the information technology systems in place for support services in the health sector are very limited. In Quebec, few hospitals have an integrated system with extensive information retrieval capabilities. Moreover, this information is rarely standardized, which further complicates data collection and analysis. Given these limitations, a strictly results-oriented comparison was not feasible, so a process-based approach was taken.
Three steps were taken to provide structure to the benchmarking process. First, the hospital logistics process was divided into several components to facilitate the analysis. Second, an analytical model and related data collection tool was developed. The model identifies the performance measures used. And third, a data collection approach was selected to get the project up and going.
Breaking down the process
The hospital logistics process was divided into three main sub-processes, namely Ordering and Managing Supplies, Receiving Orders, and Replenishing User Departments. These sub-processes were also divided into various activities to obtain a sufficient amount of detail without unduly complicating data collection. The processes associated with inventory and non-inventory products are similar, with the exception of three activities not used in processing non-inventory items. Table 1 presents the breakdown of the logistical processes, with the activities not used in processing non-inventory items identified in italics.
The analysis hones in on two types of performance measures — efficiency and quality. Breaking down these processes into a number of specific activities offers a more detailed cost analysis. It is then feasible to assess a hospital’s efficiency for each activity as well as the overall process. These costs become the primary point of comparison for identifying hospitals with the best practices. Since labour accounts for about 60% of a hospital’s costs, the primary element affecting cost calculations is the time spent by personnel in carrying out various logistical activities. A second element, technology maintenance expenses, was also considered to build a more thorough picture of the situation.
The quality of the logistics process was also considered in the measurements of hospital performance. The health sector stands out specifically because of the critical nature of the service levels associated with logistical activities: the lack of an item or a drug in the operating room could, for example, greatly compromise the work performed by health care workers and threaten the health of a patient. The quality of support services must be maintained. Table 2 lists the service quality performance measures used in this study.
The study then examined various contextual elements such as hospital budgets, number of beds and type of specialties, as well as process-related elements (the current administrative practices in the hospital).
The analytical model helps identify best practice hospitals while shedding light on why the institutions perform well. Analyzing costs and quality through the practices employed by hospitals also leads to an understanding of the effectiveness and efficiency of various hospital-specific practices. It should be noted that the methodology identifies optimal practices for large hospitals, not residential and extended care centres.
The data collection combined case studies of five hospitals, which provided an in-depth study of a limited number of sites, and questionnaires, which delivered the advantage of reaching a large number of respondents at a reasonable cost, but didn’t allow for an in-depth analysis of these hospitals. This hybrid method thus identifies the practices deployed by institutions and determines their performance level.
The method doesn’t, however, explain the nuances among hospitals with the same practices, because such hospitals are grouped together in the analysis. A second data collection phase specific to the most promising practices will therefore be needed to identify the impacts of implementing these practices. This phase will be conducted on a much more limited scale, since only the most promising hospitals will be visited.
In the current context, where health institutions must carefully manage public funds, where public accountability is becoming more and more pressing, and where governments are trying to motivate hospitals by rewarding high performing ones and penalizing those that are not performing as well, improving the logistics process through the implementation of best practices has become a must. Identifying best practices by benchmarking the hospital logistics process can help hospital managers find cures for the ailing health sector.
Étienne Poulin (firstname.lastname@example.org), M.Sc., CMA, is a consultant with TRIAX conseil, a consulting firm specializing in hospital logistics.
The hospital logistics benchmarking project was conducted by Mr. Poulin as part of his master’s thesis under the direction of Hugues Boisvert, PhD, FCMA, CMA International Chair at the École des HEC, and Sylvain Landry, PhD, CFPIM, a professor in the production and operations management education department and a member of the CHAIN SCM research group at the École des HEC.
Article Dated: March 2003