Defining transparency in the healthcare supply
by Joe Dudas and Eric O’Daffer
"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
modern-day article written on the subject of healing the healthcare system
is incomplete without mention of the subject of transparency or lack
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. (Spradlin, 2012)
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 Accountable Care Act (ACA)
has both providers and suppliers looking to their supply chain for new
solutions. Most are anticipating reimbursement cuts of 20 percent-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
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 (Figure 1).
Figure 1: Vested Relationships (Burnson,
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
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
(Figure 2). 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.
Figure 2: Trending Lack of Trust in Healthcare
Value Chain (Source: Gartner)
Strategic Marketplace Initiative (SMI), a
consortium of healthcare supply chain executives, recently launched a
much-needed "straw-man" 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 risk
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 (Figure 3).
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
Figure 3: Providers are seeking more supply
chain transparency, N=66 (Source: Gartner)
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?
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. (Williams, 2007)
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.
We challenge each of you, in the spirit of
our research, to embrace transparency to its fullest definition by sending
us your suggestions and ideas. Help us share your ideas as to how we can
change the culture of our healthcare supply chain. What will it take for
transparency? What successes have you had? Who will need to move first
(provider or supplier)? Why?
We look forward to hearing from you.
Burnson, P. (2012). Will
Mergers and Aquisitions Alter the Landscape? Logistics Managment; Spradlin,
D. (2012). Are you solving the right problem? HBR;
Williams, D. T. (2007).
Innovation in the Age of Mass Collaboration. Businessweek.
Joe Dudas serves as Vice
Chair, Category Management, Supply Chain Management,
Mayo Clinic, Rochester,
MN. Eric O’Daffer serves as Research Director, Gartner Supply Chain –