In 1987, following AHSC’s merger with Baxter Travenol, the newly formed Baxter Healthcare Corporation introduced ASAP Express, a computerized order entry system that enabled hospitals to purchase products electronically from multiple vendors. At that time, then Baxter senior vice president Richard Egan predicted the system would achieve "total automation of hospital logistics, virtually eliminating the clerical aspects of purchasing." By 1994, 2,300 hospitals and 1,500 vendors were using ASAP Express, while several other similar, but competing systems, had been introduced. The costs for vendors to maintain these systems were high, and hospitals were increasingly dissatisfied with closed systems that required proprietary formats and offered only two basic EDI documents: purchase orders (POs) and purchase order acknowledgements (POAs.)1
 

By the late 1990s, many saw the Internet, with its scalable, open architecture, as the solution. Bolstered by estimates of billions of dollars in savings industry wide and the dot.com euphoria on Wall Street, more than 60 companies soon populated the marketplace, all touting their ability to help hospitals dramatically reduce supply chain costs at the speed of the Internet.

Many of these companies were capitalized by public stock offerings and fell victim to the dot.com bust. Some offered very specific services such as online auctions for used capital equipment, while others were created to provide online trading exchanges where multiple buyers and sellers could conduct business.

Today, only three such exchanges remain in healthcare: Global Healthcare Exchange (GHX), open to and owned by representatives of the entire healthcare supply chain; Marketplace@Novation, operated by Neoforma and primarily serving hospitals that are members of the Novation group purchasing organization (GPO); and Broadlink, operated by the GPO Broadlane for its members. In order to maximize the number of trading partners that can conduct business with one another without having to connect to more than one exchange, GHX formed strategic alliances with both Broadlane and Neoforma through which providers connected to their exchanges can conduct business with suppliers connected to GHX.

A dose of reality
In 2002, the Gartner Group described the market proliferation and subsequent consolidation as a function of the "Internet Hype Cycle" resulting from a peak of inflated expectations in the late 1990s that corresponded to investor disillusionment and the dot.com shakeout. Gartner also correctly predicted that by 2003 the healthcare industry would begin to optimize eCommerce to achieve true productivity gains. Tim Richards, senior vice president of marketing for B. Braun Medical, said, "It’s not that many of the claims made during the dot.com boom were wrong, they were just premature." The mistake, he said, was assuming everything would automatically work faster in the Internet age and in not realizing that revolutionizing the healthcare supply chain has less to do with technology than it does with business process change and clean, accurate data. "Technology can make a process faster, but," he cautions, "it still takes time to change business processes to derive optimum benefit from that technology."

In 2000, Forrester Research warned that healthcare organizations would never capitalize on the promise of eCommerce without seamless technology integration2 to link the capabilities of the Internet to existing procurement or material management systems.

Adoption continues to rise
Adoption of eCommerce in the healthcare supply chain has risen dramatically in the past five years, but not nearly as much as was originally predicted during the dot.com boom. In June 2000, the Millennium Research Group reported that while the average hospital only transacted 2.6% of its total procurement online at the time, procurement managers anticipated that percentage would rise ten fold in as little as a year and reach 64% by 2003.3 Those predictions were made during a time when most thought the benefits of eCommerce would be quickly realized. Today, the healthcare industry better understands that getting to value requires time, not only to reach a point where the majority of business is handled electronically, but also to implement improvements identified through better access to purchasing data, made possible with eCommerce.

Today, most hospitals in the U.S. are conducting some form of eCommerce, if only through a direct EDI connection to the primary vendor. An increasing number are choosing to connect to one of the three Internet-based trading exchanges in order to do business electronically with more of their trading partners. More than half of the 5,800 hospitals in the United States are now using an exchange. Transaction volume over exchanges still only accounts for an estimated one-tenth of the total $105 billion spent annually by hospitals on medical and surgical supplies, but the trends indicate strong and sustained growth. Continued adoption is reflected in dollar volume, as well as the number of purchase orders and line items transacted through the exchanges. For example, the number of line items purchased over GHX in the first quarter of 2005 was 450% higher than the same time period the year before, while dollar volume has grown dramatically since the first transactions were handled by GHX in November 2000 (see Table 1 –GHX Transaction Dollar Volume).

Strategies to consider
There are many different facets to the implementation and successful use of eCommerce, just as there are many different types of healthcare provider organizations and suppliers. At the same time, certain guidelines and strategies apply to all when implementing eCommerce initiatives:

• Buyer-seller data synchronization is critical to minimizing purchase order errors and rework.

• Both hospitals and vendors can reduce IT costs by participating in a trading exchange, as opposed to conducting eCommerce through separate EDI connections.

• Technology to automate purchasing will only deliver value if business processes are changed accordingly.

• Integration between eCommerce functionality and materials management or ERP systems is key to capturing valuable purchasing data.

• Integration of eCommerce capabilities with clinical and financial systems, combined with better purchasing visibility, can foster greater collaboration among clinical and purchasing staff to select the best products for patient care at the best price.

It’s all about the data
For Aurora Health Care, a 13-hospital integrated delivery network (IDN) in eastern Wisconsin, the most valuable benefit of eCommerce will come through better visibility into purchasing across the entire system. An early adopter of eCommerce, Aurora Health Care has already seen dramatic improvements in productivity, enabling the system to increase purchasing volume nearly three-fold with less than a 50% increase in buyers, according to Ken Peterson, Aurora’s vice president for Systems Logistics Management. But for Peterson, it’s not about doing more of the same old thing with less. He has changed the focus of his department from processing transactions to analyzing purchasing data to optimize the supply chain. Working with Aurora’s GPO, Premier, Peterson’s staff can review spending history by supplier, by contract, by facility and by product. "We can take the time that we used to spend placing orders manually and use it to look for new contracting opportunities, as well as make sure we are getting the most value out of the contracts we already have in place," said Peterson.

The complexities of the healthcare supply chain and supporting eCommerce informatics are considerable. Hospital and healthcare systems need to determine which functions are inalterable in light of patient care needs, and which can be changed and enhanced without negatively impacting clinical outcomes. Change should not stop at the hospital walls. To maximize value, consensus and collaboration must extend to all of the organization’s business partners in the supply chain, including vendors, group purchasing organizations and technology providers.

All of these players can leverage their mutual participation in an Internet-based trading exchange to facilitate this kind of interaction. Value can be achieved by conducting procurement transactions electronically, but if the value sought stops there, the results will be limited at best. By working together to synchronize data, establish standardized communication protocols, and integrate technology to provide greater supply chain visibility, the healthcare industry as a whole can make dramatic improvements in controlling and reducing costs, while saving lives by enhanced accuracy in acquisition and distribution of critical patient care supplies. HPN