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Hospitals hope to save by supply management

Lahey Clinic's goal is $17m over 5 years

Lahey Clinic is hoping to save up to $17 million over five years by acting more like big-box retailers and automakers when it comes to managing a mundane aspect of the healthcare business: medical supplies.

The Burlington teaching hospital's managers decided more than two years ago that they needed to eliminate the hospital's ponderous ordering and stocking bureaucracy and to wring savings out of its supply chain. They studied systems deployed by Wal-Mart and Toyota.

Now they are rolling out a system of secure supply cabinets, bar codes, and computers that keep track of each bottle of antibiotics, every syringe and intravenous bag, and even all surgical masks, gowns, and latex gloves.

Nurses open the cabinets, which resemble vending machines and sit in every ward, using thumbprint security technology. Computers keep count of stock and automatically reorder from a vendor's off-site warehouse.

Moreover, the system links the use of supplies to individual patients, so the hospital knows exactly what it is spending on every type of illness and surgical procedure.

In an emergency, nurses and doctors can quickly override the system, open the entire supply cabinet, and grab anything they need. But the day-to-day goal is to squeeze waste and excess out of the supply chain, said Dr. Sanford R. Kurtz, chief operating officer at Lahey.

''The hospital represents a very chaotic environment for supply," Kurtz said. ''Now, when the supplies are taken out, all the charges and supply information go into the purchasing system, and we're able to generate reports."

Among the big challenges has been training doctors and nurses to change the way they operate. ''There is a learning curve here," Kurtz said. ''This is a major, major change."

But the savings to Lahey will be worth it, he said. Beyond eliminating wasted and idle inventory, the system gives administrators a way to analyze how the hospital's staff actually uses expensive materials to treat patients, from operating rooms to outpatient clinics.

''It's important to see how different physicians use different supplies to treat the same diagnosis," he said. ''This gives us an opportunity to standardize."

The system is provided under a five-year contract with Cardinal Health of Dublin, Ohio, one of the nation's three largest pharmaceutical wholesale companies. Cardinal Health says its sophisticated supply systems can save Lahey Clinic $29 million in gross pharmaceutical and supply costs and $17 million in net reductions during the five years of the contract.

Lahey Clinic says its system makes it the leader among New England teaching hospitals in efforts to replace ponderous ordering methods that are highly susceptible to errors and inefficiencies.

The techniques used by Cardinal Health have been around for 10 or 15 years, but it is only now being widely adopted by hospitals and other businesses, as Cardinal Health embarks on a more aggressive national marketing program, said Jonathan L.S. Byrnes, an MIT professor and supply-chain consultant who, in the 1980s, helped develop parts of the system marketed by Cardinal Health.

''The revolution in the objective of the vendor today is to make your customer much more efficient, because you can help that customer with the supply chain of your products," Byrnes said. ''Supply-chain management is not a core function for hospitals; curing disease is their core function."

MIT master's degree candidates are working alongside Cardinal Health managers at Lahey Clinic to learn the medical supply business, just as physicians in training from Tufts Medical School are working alongside Lahey's surgeons.

''It's in the spirit of a good teaching hospital," Byrnes said.

Christopher Rowland can be reached at

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