Hospitals running with e-procurement

Acknowledgements to NZ Herald and

After two years of negotiation and trials, the health industry is ready to adopt a central exchange to streamline electronic trading between medical suppliers and hospitals...

By the end of 2003 it's expected five hospitals and at least 30 medical suppliers will be using the Health Exchange, a local gateway into the Sydney-based Pacific Health Alliance, which may become the defacto e-commerce engine for the health industry.

Benefits are expected to include increased buying power for hospital boards, reduced cost of transactions, increased efficiency and the ability to expand beyond medical supplies to nutrition, stationary, office, computer and other areas.

"The pilot has achieved its goals," says Medical Industry Association (MIA) chairman Rohan Williams. "Working out the details took two months but it took a lot longer to say everything is working smoothly."

Williams rejects earlier hype of massive costs coming out of the supply chain but says there are obvious savings in postage, faxing, paper and getting it right first time. However its believed savings of up to 60 per cent per transaction are possible through more accurate electronic communications and the removal of post and handling costs.

Removing duplication

Williams says the MIA identified that out of every order placed by hospitals there was much duplication due to wrong pricing, units of measurement, addresses, back orders, credits and reconciliation. He says he believes these inefficiencies can be significantly reduced using the Health Exchange.

"Once a clearer picture on savings is gleaned," he says, "it'll be more attractive to add features including payment capabilities, catalogue management, tracking and accessing on-line real-time information and providing more detail about delivery dates."

The Health Exchange project originated two years ago when the MIA on behalf of 110 medical suppliers began looking for a single model rather than having different members developing systems in isolation.

MIA rejected an offer from the failed Biolab marketplace because it believed it was over-engineered and too expensive. "We're way under what they were offering cost wise," says Williams. "A marketplace might be fine for schools and universities but hospitals require strong business disciplines.

"We looked at business-to-business, marketplace and exchange options. We decided on the exchange because of the low cost of entry and the fact suppliers and hospitals could use this platform quickly."

He says using the Health Exchange is an easy decision for hospitals because their top 10 suppliers generally represent 80 per cent of their business - but to date only about 10 per cent of transactions are being done electronically. "They are keen to switch over from a manual to an automated process."

Secure transaction gateway

Pacific Health Exchange, operated by Pacific Commerce was chosen because it was already working with major pharmaceutical and medical supplies companies in Australia. It partnered with e-commerce developer and integrator Tranzsoft to provide a local secure transaction gateway.

Tranzsoft was already doing thousands of transactions with the Auckland District Health Board. A pilot was established with five medical suppliers; Smith & Nephew, Baxter Health Care, REM Systems, 3M and USL Medical. The Health Alliance, the services organisation of Waitemata and Counties Manukau health boards decided to take up the mantle on behalf of the hospitals.

A pilot involving purchase orders and confirmations was established. This meant suppliers could either have a fully integrated version that worked through their ERP system into financial and inventory management, or a web-based approach where they could place an order as an email with confirmation sent back as a Word or Excel file into the hospital system.

Hospitals could simply convert the confirmation via XML into the format required for their financial packages. Three of the suppliers adopted a fully integrated approach with their systems and two used a web-based approach for accepting orders.

After the June annual meeting of the MIA where the pilot was reviewed Tranzsoft received another 12 commitments from suppliers. MIA's goal is to have at least 30 suppliers on the system and another two or three hospitals by the end of the year.

The MIA is currently conducting data validation with Taranaki Hospital Board and expecting the first suppliers to be operational later this month. The pilot phase is considered to have been successful and will be expanded with the inclusion of electronic invoices in August. Progress will be reviewed at the end of the year.

Rules already in place

Tranzsoft will help establish the business case, which option is most suited and help map data so participants can trade with others on the exchange. "Business practices and rules have already been established between the hospitals and suppliers with contracts and supply agreements in place so this is taking a manual transaction and doing it electronically. The key is that data in each hospital database is correct and matches up with what's in the suppliers system," says Williams.

Users of the exchange pay an initial $3600 for data mapping over the first three transactions, plus a monthly cost and a transaction fee. Transaction fees will be shared roughly 50/50 between the hospitals and suppliers. Mr Williams is reluctant to reveal a specific cost, although he assures payback will be possible in under a year.

"This model works because it's not trying to force a full blown system. It's not expensive to get into - we're only trying to achieve basic functions although as we go down the track there's a lot more we can do," he says.

Tranzsoft Group managing director Rod Hall is confident the medical exchange will go nationwide with the majority of hospital boards and quickly grow beyond basic medical supplies to embrace general supplies such as computers, stationary and nutrition.

"We've got a routine around an intermediary file set which means we can plug in all file and data types and spit the right ones out the other end," he says.

A lot of hospitals are using Oracle or SAP and some are on proprietary systems although their dealings with medical suppliers is still largely via flat file or fax. "People should be looking toward full integration into the heart of their own systems. While we can take output from fax automation," says Hall, "we're encouraging people to take another step because it's more hands off and greater accuracy can be achieved."

Case Study: Flag falls on taxi-chit abuse

Want a good example of how automated e-business applications can impact the bottom line - look no further than TaxiCharge. Established in 1994, the cost management specialist now processes more than $50 million worth of taxi travel a year.

Regular taxi users will be familiar with how it works. Using charge cards and vouchers, TaxiCharge captures all travel on one consolidated tax invoice, regardless of what taxi provider is used. It then works with clients to highlight areas of cost savings, and scans vouchers to provide authentication.

Not only is the system secure (TaxiCharge cards and vouchers can only be used for taxis), the system also provides minimum administrative input while ensuring that maximum information is captured for reporting and consolidation purposes.

TaxiCharge general manager Mark Lines says the system offers clients two levels of access, ensuring that only those authorised can have more than 'read only' access. He says TaxiCharge succeeds as an e-business application because it offers real savings for customers, and there are no fees or administrative charges passed on.

"With any e-business application it's important to keep it simple and easy to navigate," says Lines. "It's also important to hold people accountable. Ensure that the accounts are set up in such a way that it minimises time spent with administration - that way companies can concentrate on their core business activities."

Lines says the next significant step for TaxiCharge will be to install terminals in taxis - to cut out manual processing entirely, and operate in real-time. With some 250,000 transactions per month, that's bound to make a difference.