The industry’s first A.I.-powered procurement solution to save costs by 15% p.a. and help make the right choice of products at the right time and price.

Executive Summary

The healthcare industry in the US is among those industries with the most challenging and enormous supply chain activities. There are tens of thousands of items that need to be replenished regularly, ranging from surgical masks to prescription drugs. This solution is developed by LARION for Customer M, the largest healthcare services company in the United States. It relies on a formulary-based procurement solution with automatic functional equivalence identification to bring significant cost savings up to 15% annually.

About Customer M

As the oldest and largest healthcare services company in the United States, Customer M plays an integral role in the healthcare industry and has a unique vision for its future. It serves more than 50% of American hospitals, 20% of physicians and 100% of health plans, and as the largest pharmaceutical distributor in North America, the company delivers one-third of all medications used there every day.

Challenges

Healthcare institutions normally have huge demands for supplies procurement. At the heart of their supply chain system is the item master, which basically is a list of all items purchased by the institutions. These item master files can range from 18,000 to more than 100,000 items, with thousands of inaccurate or duplicate items.

Because item masters are constantly being updated, 30 percent of systems are inaccurate, according to a recent study by AHRMM (Association for Healthcare Resource & Materials Management).

In addition, the sheer size of item masters and the number of users make housekeeping difficult. Common errors may include:

• New catalog information not added in a timely fashion.
• Discontinued items not deleted.
• Codes or descriptions not typed correctly.
• One single item may appear in more than one entries with different descriptions.
• Many contracts are kept for similar items in the system

Furthermore, hospital networks with disparate systems cannot keep up with the ongoing churn of item master information to maintain accuracy. Through Customer M’s market analysis including over US$9 billion in supply spending, the following challenges are discovered:

• 24% of supply chain staff time is spent on fixing errors post purchases
• 15% occurrence rate of different prices paid for the same product
• 30% item master content churn outdates “source of truth”
• 12% of over payments are made on costly PPI (Physician Preference Items)

Statistics currently revealed that the administration cost of supply chain accounts for over 40% of estimated operational expenditure of enterprises. This cost ranked second in the total operational expenditure of most hospitals, only following labor cost. Therefore, there has been a great need for developing a system to manage supply chains with the aim of minimizing unnecessary costs during the process of trading medical equipment for hospitals. Old systems in the world have failed to process data with accuracy and lost around 60% of cost saving opportunities for trading supplies and equipment between hospitals/healthcare institutions and suppliers.

The Solution

Customer M’s Strategic Supply Sourcing solution helps drive sustainable savings for Med-Surg supplies by enhancing item master content. Through better item master content, the solution empowers users to make the right choice at the start of the procurement process. Real-time insights help monitor compliance to savings goals.

The system is integrated with the Cloud Computing technology and functionalities designed and developed by LARION to launch an automated supply sourcing platform with the highest efficiency in the healthcare sector.

It is a complete and effective solution to the above challenges using Virtual Item Master (VIM), Artificial Intelligence (AI), and formulary procurement control.

• VIM is a cloud-based, Software as a Service (SaaS) offering that expands the limits and capabilities of traditional item masters. It enables more efficient maintenance of product content, standardization of item requests and enhanced user-search capabilities in a single electronic repository.
• VIM fully integrates with an organization’s Materials Management Information System (MMIS) and enterprise resource planning (ERP) solution.
• The solution takes a step further by combining a virtual item master with an Artificial Intelligence (A.I.) engine. All of the organization’s supply chain data is captured and normalized with manufacturer catalog data. Information is continually updated and normalized so that data stays “clean.”
• This industry-first, patented A.I. engine normalizes and attributes data, allows for the definition of functional equivalency by product family and recommends lower cost alternatives at the point of requisition.
• The industry-first, preemptive formulary enforcement helps give users unprecedented control to find the desired products at the point of requisition, and it includes an anywhere-access mobile option.

Core technologies that are used for this application:

• Ruby on Rails
• Data Discernment Engine
• PostgreSQL
• Ext JS
• Apache 2 + Phusion Passenger + Ruby Enterprise Edition
• Amazon Infrastructure – Cloud Computing
• GUI (Graphical User Interface) was powered by Ext JS framework and Fusion Chart

How it works

The solution provides unprecedented, industry’s first capabilities in all 3 major areas of supplies procurement: Find, Compare, and Control.

For the ‘Find’ function:

• VIM helps identify items through pictures, aliases and unlimited attribution, giving requisitioners guided access to all of the items available to them.
• The solution provides access to a standard catalog, The Matrix, that contains more than 2 million normalized and fully attributed items including photos and full length product descriptions.
• Users (clinicians) gain a consumer-typed search capability, including photos, for easy identification, and hence are able to find the right products more easily.

For the ‘Compare’ function:

• The system is able to recognize different naming conventions for the same or like items.
• It can readily identify functionally similar products so organizations can group and compare items for standardization.
• With integration in all contracts, users can compare items to help make the right decision to control spending.

For the ‘Control’ function:

• Healthcare organizations’ requisitioners are presented with pertinent information, including the last price paid, the correct contract price and a less expensive alternative.
• Any non-compliant item request prompts an alert to require approval routing, including a delegation feature when approvers plan to be out of the office.

Benefits

• Saving up to 15% of annual supply chain spend, or US$250 million and increasing.
• More than 3,000 users subscribed.
• Procurement efficiency enhanced largely.

Quotes

“… Both organizations take responsibility for each other’s success. This did not happen overnight. It is the result of establishing a deep level of trust and respect for the commitment, integrity, and skills that each party has to offer…”