A Backgrounder on Healthcare Product Standardization

In the past few blogs we addressed product standardization initiatives within healthcare systems.  This is an important and very current topic among healthcare supply chain professionals.  This month’s blog provides a backgrounder into this practice and the rationale for its use.

In almost every industry, business managers establish and prescribe the use of optimal products, protocols, processes, designs and practices aiming to yield maximum performance.  These are standards.  They are chosen through a variety of means but generally follow an engineered approval process within the business and by the business.  While some latitude for deviation from the prescribed product is permitted, it is only done if the financial, operational, or outcomes are not materially affected.

Notably different in this practice is the field of medicine and in particular, the large integrated healthcare providers.  In this case, independent physicians make material decisions regarding the use and non-use of individual devices, supplies and equipment.  These decisions typically are based on personal, independent views of efficacy and comfort.  Amongst physicians, they are referred to as “physician preference items (PPI)”.  For many physicians, these preferences are determined early in their career, often during their training under the supervision of other doctors.

As a result of these strong preferences, healthcare system leaders, whose job is to ensure that both quality care is provided and that the system operates in a sustainable form, are severely limited in implementing standard practices designed to keep costs in line and to assure quality practice.  This is important and significant.  In most hospitals, physician preference items represent close to 30% of the hospital’s medical supplies budget.  Saving just 10% of that spend by applying best practice standardization programs can save 3% of the total hospital budget.

In our advisory practice at HSCX, we regularly find hundreds of thousands of dollars of savings accessible through standardization initiatives.  But even more importantly, the quality of medical practice is improved as the use of standardized products leads to increased patient safety.  To capture these benefits, physicians, other clinicians, and program managers must work together to agree on the right products, processes, practices, and protocols.  The value capture can be astounding.

And it is important to remember that this does not translate into cheaper care.  It translates into better managed care.  In today’s hyper inflationary medical environment, all systems have an obligation to actively pursue standardization.  It’s for the better of the patient and for the better of the system.

Watch for next month’s blog where we will examine the special approaches to standardization in the healthcare industry.  As well, we’ll look how healthcare standardization applies to the episode of care or what has been described as a “Design to Cost”.  In the meantime, think about your system’s approach to standardization.  What do you need to make it more successful?  How can you create more value through standardization?

Posted by: Jim & Gene

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