RFI: e-commerce in drug procurement (2)
---------------------------------------
Dear Dr. Haichao Lee,
It's great to hear from you again. You wrote: I am a health economist
at Beijing Municipal Centers for Diseases Prevention and Control. I
want to know the advancement of e-commerce in drug procurement in other
countries. Could some one help me find the related information in this
field? Thanks in advance!
I have some examples below from the U.S., and Australia, but efforts
have been limited in taking e-commerce to developing countries (low-
income to mid-income at this point). Most important item to note is
that it has been predicted that at least 20% of manufactured goods will
be provided by Asia-Pacific partners via internet-based buyer and sup-
plier procurement hubs by 2004. This will obviously have a tremendous
impact on the economy of your region, so you are wise to investigate it
at this point. In the December 1st issue of SCRIP, there's an article
about Merck & Cc to invest $100 million in e-health, I haven't read it
yet, but I will. If you can ask me more specific questions regarding
e-commerce in drug procurement, it would help me narrow down the
search. For now, please see the websites and articles below for gen-
eral advances in the field. We'd love to hear about what you're doing
Dr. Lee, so please do share it with us. Knowledge is like karma, what
goes around, comes around.
All the best, Homira
mailtoHealthPop@worldbank.org
ARTICLES
http://www.mexen.com/articles/article.cfm?ID=18
Section 1: E-commerce & Emerging Internet Technologies The Healthcare
Supply Chain Annual United States healthcare supply chain expenditures,
including medical and non-medical supplies, pharmaceuticals, services
and equipment, exceed $200 billion, and the worldwide market for these
products and services exceeds $300 billion. The traditional healthcare
supply chain is highly fragmented and inefficient, and fails to ade-
quately address the comprehensive needs of buyers and suppliers. A
study conducted by Computer Sciences Corporation for the Efficient
Healthcare Consumer Response, an association of healthcare manufactur-
ers, distributors and providers, estimates that in 1996 the total an-
nual supply chain process cost in the US for consumable medi-
cal/surgical devices, non-retail pharmaceuticals and non-capital diag-
nostics was $23 billion. The report estimates that $11 billion could be
eliminated through more efficient supply chain management.
B2B E-Commerce for Healthcare: Harnessing Electronic Procurement to Re-
duce Supply Chain Costs Ken Perez Omnicell.com Growth of Business-to-
Business E-Commerce in the Healthcare Supply Chain The inefficiencies
associated with the healthcare supply chain have created significant
opportunities for business-to-business e-commerce. According to Forres-
ter Research, US pharmaceutical and medical transaction volume proc-
essed through business-to-business e-commerce is expected to increase
from $1 billion in 1999 to $44 billion in 2003, representing a 136%
compounded annual growth rate. In order for e-commerce solutions to
supplant the healthcare industry's current methods of transacting busi-
ness, seamless integration with buyers' information systems and effec-
tive coordination of buyers' and suppliers' actions will be required.
Business-to-business e-commerce in the healthcare market is essentially
electronic procurement (e-procurement). Companies such as Ariba Tech-
nologies and Commerce One pioneered web-based e-procurement, though at
one time there were about fifteen e-procurement vendors in the field.
In general, these early e-procurement solutions were offered only in a
self-hosted version, requiring an enterprise software license - a rela-
tively high up-front cost - and a commitment on the part of the cus-
tomer to purchase hardware and maintain a data center to run the e-
procurement solution. Consequently, early adopters were mostly large,
corporate customers, with the necessary financial means and technical
expertise. The early e-procurement solutions focused on improving the
efficiency of the supply chain for indirect goods, but not direct
goods. Often, the focus was on maintenance, repair and operations (MRO)
or a variant, "Operating Resource Management", a term coined by Ariba
Technologies.
However, in the healthcare market e-procurement solutions are capable
of automating the requisition, approval and purchase process not only
for indirect goods, such as MRO, but also direct goods, such as medi-
cal/surgical supplies. In addition, the more robust e-procurement solu-
tions are designed to be able to facilitate the requisition, approval
and purchase process for services and even capital equipment.
Online marketplaces that seek to aggregate buyers and suppliers within
the confines of a web site have been offered as e-procurement solutions
for healthcare. However, they have enjoyed limited adoption by health-
care buyers due to a number of limitations. First, online marketplaces
have difficulty integrating with healthcare facilities' existing enter-
prise resource planning, healthcare information, materials management
and purchasing systems. Second, online marketplaces do not have auto-
mated business rules engines that incorporate users' procurement ap-
proval processes to facilitate approval and support compliance. With
these shortcomings in mind, one may draw the conclusion that the cur-
rent online marketplace offerings in the healthcare market are not
truly e-procurement solutions, in that they lack many of the features
and functionality of the early e-procurement solutions.
However, hosted application service provider (ASP) models of some of
the early e-procurement solutions are now available (e.g., Commerce
One's BuySite� Portal Edition). These new versions are attractive to
cash-strapped and resource-constrained healthcare buying organizations
because of their low up-front costs and minimal hardware requirements.
Plus, some vendors of these hosted e-procurement solutions offer ver-
sions that incorporate the healthcare facility's business rules as well
as integration with the healthcare facilities' existing back-end sys-
tems.
The Benefits of E-procurement Solutions These e-procurement solutions
provide a number of potential benefits to buying organizations, and
cost reduction is undoubtedly the best-known benefit. In general, e-
procurement can reduce buyer costs by:
* Automating the purchase requisition, approval and order process
* Reducing errors and rework
* Reducing "maverick", off-contract purchasing
* Providing online access to multiple suppliers, thereby facilitating
price comparisons
* Saving administrative time and providing "meta" data, which enable
purchasing professionals to negotiate better terms with suppliers.
In the healthcare market e-procurement solutions are capable of auto-
mating the requisition, approval and purchase process not only for in-
direct goods, such as MRO, but also direct goods, such as medi-
cal/surgical supplies.
E-procurement solutions provide a number of potential benefits to buy-
ing organizations, and cost reduction is undoubtedly the best-known
benefit.
http://www.eyeforchem.com/chem/newsletter012800.shtml
http://dscp103.dscp.dla.mil/dmmonline/cbu/pharmaceuticals/mghome1.htm
http://www.show.scot.nhs.uk/astcp/Policy/Policy/Procurement%20Strategy.
htm
Electronic Trading
5.1Some hospital pharmacies are either using, or are in the process of
implementing modules, within their existing pharmacy systems, that will
support electronic trading. This should be encouraged, to use elec-
tronic trading increases efficiency, and this should be a strategic ob-
jective for pharmaceutical procurement in Scotland.
The development of the NHSNet and moves towards true paperless trading
must be encouraged. Changing the culture of the NHS away from a depend-
ence on paper should improve flow of information and may allow greater
resource available for direct patient care.
5.2 It is currently time consuming to input national and zonal contract
details onto local systems. The recent development and trial of Consol
as a system to transfer contract details into and between pharmacy sys-
tems is welcomed and should be supported. Most modern pharmacy systems
are ODBC compliant in order to facilitate data transfer between sys-
tems.
It should be noted however that procurement is only a small part of a
pharmacy computer system. Good systems are available commercially and
the NHS would do well to focus attention on areas where development is
required rather than compete with commercial expertise.
6. Conclusions
6.1 There is evidence to support an active strategic approach to
pharmaceutical procurement within the NHS in Scotland. There is also
evidence of innovation in the use of information technology and the use
of joint ventures with industry.
6.2 Pharmaceutical procurement has been developed effectively through
a combination of local, zonal and national contracts. It is likely how-
ever, that procurement could be further enhanced by active management
and co-operation across these interfaces, and further strategic devel-
opment is essential and this will be taken forward by the ASTCP.
6.3 Pharmaceutical procurement is and should remain under the supervi-
sion and control of the appropriate Trust Chief Pharmacist.
6.4 In attempting to make pharmaceutical procurement effective consid-
eration must be given to the fact that around 90% of drug expenditure
is in primary care, decided upon by contractors to the NHS rather that
Trust employees. Local contracts, and perhaps zonal contracts, will
therefore continue to play a significant part in the process and atten-
tion should therefore be focused on expert advice provided by the local
Drug & Therapeutics Committees.
6.5 National contracts are effective where there is true generic com-
petition. Zonal contracts are effective in some other areas due to the
inclusive nature of the process and the ability to consider local
variations through a Trust lead. The national contracting process
should be developed, to take on some of the zonal processes where added
value can be demonstrated. This will require a change in the current
process as well as a change in the membership and leadership of commit-
tees.
http://asia.internet.com/cyberatlas/0812-gartner.html
Dataquest predicts that by 2004 Asia Pacific manufacturers will supply
more than 20 percent of the world's manufactured goods via the Inter-
net.
Dataquest said international electronic commerce software and services
vendors will dominate the region's Internet-based manufacturing hub
market through 2004 because the region continues to lack the necessary
local expertise to independently manage global electronic supply chain
networks 24 hours a day.
"Over the next five years, manufacturing Internet hub services in
Asia/Pacific will expand rapidly and establish long-term links with
global procurement networks," said Lane Leskela, senior analyst for
Dataquest's Digital Commerce Asia Pacific program.
These procurement networks will be organized according to vertical in-
dustry supply chains, including plastics, electronic components, auto
parts, pharmaceuticals and building materials. The emerging global pro-
curement environment will require international vendor expertise to
create and manage complex electronic supply chains composed of thou-
sands of manufacturers, distributors, forwarders and buyers located
throughout the world.
Vendors are under pressure to provide higher levels of client support
and integrated application delivery because of the rapid development of
highly distributed electronic supply chain (SCM) networks, electronic
commerce software and services.
These vendors are in an environment evolving from traditional elec-
tronic data interchange (EDI) extranets to global procurement hubs de-
livered via the Internet.
"As the delivery of EDI and Web-based trading applications over the
Internet grow exponentially, so will the penetration of lower-cost
electronic SCM solutions among small business participants in new re-
gional and global procurement networks," said Leskela.
http://www.chemdex.com/news/elan.html
Elan Pharmaceuticals Selects Chemdex for Scientific Procurement Solu-
tion
Palo Alto, Calif.?May 7, 1999?PR Newswire?Chemdex? Corporation, the
leading provider of electronic commerce solutions for laboratory sup-
ply, today announced that Elan Pharmaceuticals ("Elan"), a division of
Elan Corporation, plc, has signed a contract for Chemdex to provide an
integrated scientific procurement solution which will be available to
employees enterprise-wide. Elan will use the Chemdex procurement solu-
tion to enable their scientists and purchasing professionals to buy
scientific supplies directly from Chemdex, via the Internet.
"Chemdex leads the industry in offering comprehensive web-based pur-
chasing solutions," said John Varian, senior vice president of finance
& administration at Elan. "Choosing to partner with Chemdex was an easy
decision. Their complete selection of laboratory supplies and custom
procurement features expedite the purchasing process and will help our
scientists and purchasers by saving time and money. We believe this
agreement will allow Elan to concentrate on our primary objective-
continuing leadership in the development of new therapeutics in neurol-
ogy, pain management and acute care."
By streamlining the procurement process, Chemdex will help Elan to dra-
matically reduce its order processing costs. Chemdex customization al-
lows easy integration with Elan's existing business processes, includ-
ing electronic requisition routing and approval, custom pricing and
catalog views, account codes, summary billing and consolidated report-
ing capabilities.
With Chemdex, Elan employees will now be able to make fast, informed
purchasing decisions, allowing increased research productivity. Chemdex
offers a number of features to facilitate online ordering including: a
specially designed scientific search engine, the ability to consolidate
orders for multiple suppliers onto one order form and a favorites list
to keep track of commonly ordered products.
"By partnering with Chemdex, Elan can effectively streamline its pro-
curement process and increase productivity," said David Perry, presi-
dent, CEO and co-founder of Chemdex. "Elan is one of the world's lead-
ing specialty pharmaceutical companies and we are very pleased to be
working with them toward our common goal of getting their products to
market faster through more efficient and cost-effective purchasing with
the Chemdex procurement solution."
http://health.abol.net/abolhlth/HealthNews.nsf/d92463db5f50b9794a256983
0000f604/a26ac9fbd20b876e4a2568e20007878b? OpenDocument
http://www.manufacturing.net/magazine/purchasing/archives/2000/pur0907.
00/091chem.htm
Strategic redesign:
How Glaxo Wellcome improved procurement By Christopher Reilly In the
early 1990s, procurement at Glaxo Wellcome Inc. underwent several
changes designed to streamline processes to make its purchasing func-
tion more efficient. Strong growth in pharmaceuticals in recent years
and the expectation of more growth in the future made procurement re-
structuring a necessity.
Over a period of five years, Sam Straight, Glaxo Wellcome's interna-
tional procurement group director, North America, implemented a plan to
improve the way the company buys a wide variety of goods and services.
The plan, which was designed to run for two years and then refined over
the remaining three years, consisted of many improvement thrusts. With
an eye toward making procurement less tactical and more strategic,
Straight was able to reap many benefits, including cost reduction on
the order of $200 million over five years.
A time for change
Glaxo Wellcome Inc.'s procurement function was not working as well as
it could have. Continued double-digit demand growth in the pharmaceuti-
cals market and the growing financial success of Glaxo Wellcome created
a problem for procurement. More requisitions, purchase orders and ap-
provals were coming into procurement than the existing staff could han-
dle.
"We were operating like most pharmaceutical purchasing departments at
the time, with too many requisitions being written, too many purchase
orders being mailed, too many receipts and invoices coming in and
checks going out for the goods and services we buy," says Straight.
"Essentially, we were about to strangle on paperwork."
To handle the paperwork, the majority of the company's purchasing per-
sonnel were involved in the tactical, administrative duties. There was-
n't time or enough manpower to work on improving processes,
buyer/supplier relationships, or being more strategic in their sourc-
ing, according to Straight.
And with the acquisition of Wellcome in 1995, Straight knew that unless
some critical changes were made to the current procurement situation,
matters would only get worse as business grew. It was time to act.
Though Straight was given approval to hire more personnel (enough to
almost double the current procurement staff) he didn't want to travel
that route.
Rather than expand the staff to handle the growth, Straight had some
other measures in mind to overhaul the entire department, streamline
the way goods and services are purchased, improve quality and service,
and save the company money.
He explains: "We knew that our spending was growing. And we expected it
to reach about $3.5 billion in the next few years," he says. "We real-
ized that if we kept going the way we were, the number of purchase or-
ders being mailed out would increase from about 12,000 to 14,000 per
year to about 250,000 by the end of the decade. Our first task was to
develop measures to reduce that volume," Straight says.
Straight felt that if procurement could remove a lot of the requisi-
tions and purchase orders for the low-end purchases, it would also have
more time to take a close look at contracts development with preferred
suppliers. "It became clear that we needed an electronic system to
track these areas," he says.
The first step
The first step toward reducing the paperwork handled by procurement was
to institute a procurement card system. In collaboration with disburse-
ments, cards were issued to most of the 1,400 cost-center managers,
along with authorization to purchase up to $2,000 worth of goods or
services. The goal of this program was to eliminate the need for pro-
curement to be involved in small purchases. "We were looking to improve
velocity throughput," Straight says.
Together with the finance department, Straight says that procurement
lobbied the company's executive management committee to increase the
amount that the cost-center managers could spend within their budgets
without requiring additional approval. Straight says that eventually
these cost-center managers were given up to $250,000 to spend within
their fiscal budgets in this manner.
"A lot of purchasing departments have a control mentality," Straight
says. "We decided that that wasn't the direction we wanted to take."
However, some restrictions were developed for the procurement cards.
Straight says that the company didn't want non-purchasing employees
buying non-approved software or furniture, for example. He explains
that for these non-approved purchases, cost-center managers would be
"locked out" of completing the transaction.
But while this control was necessary, Straight says that the system of-
fers a lot more freedom to customers than in the past. Prior to the
procurement card system, Straight says that any purchase, no matter how
minor, could require as many as two-dozen signatures to gain approval.
Essentially procurement cards let customers (other business units and
department within Glaxo Wellcome) order what they want from pre-
approved suppliers, within certain limits, without purchasing involve-
ment.
Now, with the procurement cards and the streamlined approval systems in
place, and monitored by the company's auditing personnel, Straight says
that they have taken a tremendous number of transactions off the plate
of procurement and removed a lot of the paperwork required by both the
procurement and the disbursement departments.
For an idea of the amount of paperwork purchasing saved itself through
the use of procurement cards, Straight gives this example: In 1999,
Glaxo Wellcome spent about $3.5 billion. Straight says that a lot of
that money was inter-company spending, but for all of the products and
services purchased in the U.S., only 3,000 purchase orders were written
and mailed for all of last year.
A few steps further
"When you give people the authority to purchase what they want, when
they want it, from whom they want, you run the risk of inflating the
supplier base, because each procurement manager and customer will natu-
rally develop their own list of preferred suppliers," Straight says.
"This had major problem potential, because procurement had already com-
mitted to a goal of 20% annual reduction of its supply base."
To solve this problem, Straight began to develop an application on the
company's intranet where procurement personnel in the company's North
American operations could find those suppliers that management had
qualified and deemed "preferred."
"We created a procurement Web site," Straight explains. The Web site
was to be used as a resource by the procurement department and its in-
ternal customers, as well as a link to its preferred suppliers. "On the
Web site, we added a variety of templates for good procurement prac-
tices, information about obtaining a procurement card, processes for
requisitioning, templates for good contracting practices, and how, ul-
timately, suppliers would be paid," he explains. "We then tied this
back into our disbursements Web pages," he says.
"We also wanted to start paying our suppliers electronically. But in
order to do that, we needed the suppliers to start giving us the
information that they supply on paper invoices in an electronic
format," he says.
Because Glaxo Wellcome's preferred suppliers exhibited varying degrees
of computer literacy and understanding of how the process would work,
disbursements enlisted the help of two outside firms. One firm would
handle the electronic processing of data between the suppliers and
Glaxo Wellcome. The other company would take the paperwork from those
suppliers that didn't have the technological capacity, convert it to an
electronic data stream, and then feed it to the other company in charge
of transmitting it back to Glaxo Wellcome. Straight says that then his
company would authorize payment and the electronic funds transfer would
take place.
"Before this system, suppliers would get paid anytime from 10 to 30
days from the order receipt, depending upon the negotiated terms,"
Straight says. "But now, our electronic funds transfer system has the
capability to pay suppliers in as little as 24 hours from the time of
the order."
"That's worth something," Straight says. Paying suppliers early became
a strong negotiation point buyers could use to get suppliers to remove
some cost from the system. The rationale is that if the supplier is
getting paid sooner, Glaxo Wellcome would lose that cash float and
should be able to negotiate for some compensation.
Getting buy-in
When Glaxo merged with Wellcome in 1995, Straight was given manage-
ment's approval to hire up to 75 people in the procurement department.
But instead, he opted to keep the staff the same size and make a few
major changes in personnel and workflow processes.
Straight explains the makeup of the procurement function using the
analogy of a pyramid. "We had a lot of people at the base of the pyra-
mid, responsible for the day-to-day tactical work such as tracking pur-
chase orders, phoning in requisitions, etc.," he says. With a lot of
administrative people at the base, there were much fewer purchasing
professionals responsible for the more strategic sourcing tasks located
at the top of the pyramid, according to Straight. "What we wanted to do
was flip the pyramid," he says. "We wanted the small pivot point of the
inverted pyramid to contain few administrative personnel, while the top
was to be filled with many experienced, highly trained strategic pro-
curement professionals."
But like many corporate management initiatives, getting buy-in from the
staff wasn't easy. In fact, when the plan was proposed, it was met with
apprehension. "People were very concerned that we were going to elimi-
nate their jobs," Straight says. "It took a lot of selling, re-selling
and reinforcing the plan in order to get the staff to understand that
we weren't eliminating jobs, we were going to change them and provide a
two-year on-site educational program conducted by the National Associa-
tion of Purchasing Managers, (NAPM), he says."
For instance, Straight says that he changed the position of "purchasing
specialist" into a combination of administrative and purchasing duties.
"We decided that we weren't going to have a lot of secretaries in the
procurement department, so we gave these people some training and pro-
curement authority, and we committed to growing them in the organiza-
tion," he says. "We built a career ladder for them to climb, from pur-
chasing specialist, to associate buyer, to buyer, to senior buyer and
so on," Straight says.
After some initial fits and starts, which are natural consequences of
learning a new system, Straight says that the staff became enthusiastic
about the procurement redesign. Just as important is the fact that this
has enabled the company's North American procurement department to keep
it's number of personnel constant at about 45 people.
And while business has grown, the system has enabled this same number
of people to handle about $3.5 billion in annual spending. This is one
of the smallest procurement units in the U.S. pharmaceutical industry
with one of the largest annual spends, according to Straight.
Consolidate the supply base
Running parallel to procurement's efforts at Glaxo Wellcome to stream-
line processes and improve the flow of paperwork was the goal to take
costs out of the system by developing better contracts with fewer sup-
pliers. Straight found that developing electronic tracking and business
management systems was instrumental in developing more significant al-
liance partners.
"Back in the early 1990s," Straight says, "we had more than 2,000 sup-
pliers of laboratory consumables for our research & development and
quality assurance functions, and that number was growing." This is be-
cause the company's 1,500 scientists were buying their products from
their favorite traditional suppliers.
To resolve the problem, Straight formed a team representing purchasing,
facilities, research & development, legal, information systems, manu-
facturing and operations to conduct a laboratory needs assessment. "Ul-
timately, we were able to settle on one supplier to handle the majority
of our laboratory consumables," he says, explaining that while some
proprietary products must be sourced through particular suppliers, con-
solidating the majority of these products with one supplier eliminated
a great deal of waste.
Straight didn't stop there. The consolidation mentality led to some
other lucrative single-sourcing contracts. For instance, in the area of
temporary-employment services, Straight says that Glaxo Wellcome used
more than 150 agencies at one time for it's extremely diverse staffing
needs. Again, by conducting a cross-functional needs assessment, it was
determined that no one temporary-services provider could satisfy all of
Glaxo Wellcome's temporary-employment services needs. "We asked the two
top contenders in the bidding process to combine their businesses, cre-
ating a wholly owned subsidiary," says Straight. "This new business is
now our key provider of temporary-help services. And we have more than
1,000 temporary employees currently in place throughout the company,"
Straight says.
Consolidating with one company standardized employee training and
placement. The result, according to Straight, is a much smoother opera-
tion with one on-site point of contact. "Again, the whole thing is han-
dled separately from procurement," he adds.
In the area of maintenance, repair and operating supplies (MRO),
Straight says he was able to outsource every aspect relating to these
items, including procurement. After working with an MRO supplier for
several years, Straight says that Glaxo Wellcome finally decided to
give the company the entire business. "We had such a good working rela-
tionship and cost basis for more than seven years with the company, we
decided to outsource everything related to MRO with them," Straight
says. According to Straight, the firm provides all on-site needs, in-
cluding buying, planning, staffing, inventory control and project exe-
cution.
Another similar agreement was reached with a supplier of computer
equipment and supplies. Straight explains that Glaxo Wellcome con-
tracted a major reseller to represent every major manufacturer. Infor-
mation systems personnel can requisition an order for a computer (pro-
vided that it meets the requirements established on the intranet for
such purchases) and have it paid for and delivered without having to
gain approval from procurement. "All the rules are set up," Straight
says. "The information systems people police it, and we don't have to
chase after it."
Contract management
Straight' s system of reducing paperwork for procurement also was de-
signed to improve the function's relations with suppliers through im-
proved information exchanged between Glaxo Wellcome and its suppliers,
as well as quality and performance tracking and benchmarking best prac-
tices.
As an example, when developing the supplier performance monitoring ap-
plication for manufacturing materials, Straight hired a programmer who
really knew the ins and outs of this type of interactive program. "We
wanted suppliers to be able to access the system at any time to see how
they were doing, and we also wanted our own quality-control people to
be able to input information," he says. "The whole system had to be
flexible and powerful, because we had some very finite criteria that we
wanted to measure," he says.
"The application works like an interactive process improvement tool,"
Straight says. Data generated by the application is used in quarterly
briefings with representatives of key suppliers. At these meetings,
Straight discusses the suppliers' performance attributes. "If one sup-
plier is doing an exceptional job in a particular area," he says, "We
ask that the other suppliers take some time to benchmark their proce-
dures and practices."
Using the data from the application, Straight has also built service-
level criteria into some supplier contracts. Under these agreements, as
long as suppliers continue to provide a certain level of performance as
recorded by the application, the contract will continue to roll over
each year. According to Straight, the longest contract his company has
with a supplier is for 10 years. "Most fall into the range of one to
three years," he says.
In the process of implementing an electronic business application with
suppliers, Straight discovered some obstacles. The biggest problem with
such an application was security. Straight says that he consulted his
company's data security personnel and asked exactly what criteria sup-
pliers would need to adhere to in order to ensure that data coming
through the Web site's firewall would remain secure. "We also asked
what procurement could do to prevent data sent back to suppliers from
being intercepted or having its confidentiality otherwise compromised,"
Straight says.
Ultimately, the data security people built a security plan around Glaxo
Wellcome's requirements. "Then we sold the plan to our preferred sup-
pliers, outlining the criteria they would have to meet in order to con-
tinue to be a preferred supplier," he says. One of these criteria, ac-
cording to Straight, was that suppliers design some form of online of-
fering that is similar and compatible with Glaxo Wellcome's. "We wanted
it to be familiar to our buyers and internal customers," Straight says.
"Many suppliers could not make the grade, and as a result they are no
longer suppliers of Glaxo Wellcome."
Another contract management application Straight made available on the
company's intranet was designed to help internal personnel forge con-
tracts with external service providers. "We set up contract templates
on our intranet to give our customers the ability to engage a contrac-
tor," he says. "Provided that the contract agreement conforms to cer-
tain criteria, involving liability and insurance issues, the customer
doesn't have to get the approval of purchasing in order for the con-
tract to go through," he explains.
Future prospects
In response to the trend of manufacturers and suppliers turning toward
developing electronic systems for their procurement, sales and order
processing, Straight says, "There is an absolute need for companies to
go this route. Long term, we'll see more and more companies turning to
electronic channels for their order processing," he says.
In fact, during Glaxo Wellcome's procurement redesign and the implemen-
tation of the electronic business management, procurement cards and
other systems, Straight says that several third-party electronic busi-
ness service providers approached him.
Straight looked into what these companies had to offer and decided that
what Glaxo Wellcome already had in place was beyond what these compa-
nies were offering. "The companies agreed with our assessment,"
Straight says. "But they also said that they'd be back."
"These electronic commerce companies continue to build better mouse-
traps," he says. Because of this, Straight adds that his company con-
tinues to take a hard look at what's available in terms of e-commerce
in the pharmaceutical industry. "The steps that we have taken on our
own will ultimately be outsourced," he says.
E- Commerce Beyond 2000 in the Health Sector
The health industry is a service industry characterised by its hugely
varied service types, high proportion of independent professional pro-
viders and diverse and decentralised industry structure.
It comprises major multi-specialty public and private referral hospi-
tals, small specialised private hospitals, general district hospitals,
nursing homes and independent medical specialists, general practitio-
ners, allied health professionals, community health centres and related
business support and industry associations. Self-employed medical prac-
titioners operating in solo practice or in partnership with a small
number of other practitioners provide the majority of health services.
The health sector is an important part of the total Australian economy,
with private and public outlays totaling in excess of $42 billion per
year.
The use of information technology in the health sector is very varied
and overall rather primitive compared with other service industries.
. powerful drivers underlie a dramatic change in the way information is
collected, managed and communicated in the health industry. These in-
clude: The explosion of knowledge in medicine and biotechnology result-
ing in an increasing focus on quality and evidence based treatment;
Shifts in demand from brief acute episodes of care to extended clinical
care for long term health conditions with a consequent demand for bet-
ter integration and coordination of clinical care across organisational
and temporal boundaries; and Explosive increases in healthcare costs
and consequent strategies to better manage health care at both the sys-
tem and health care provider levels.
Changing patterns of health practice have put the issue of coordination
and integration of services by multiple providers at the top of the
health industry agenda.
Service delivery channels and the Health Value Network Increasing spe-
cialisation of skills and technologies among consultants, diagnostic
specialists, proceduralists and dispensers of powerful therapeutic
agents have dramatically increased information flows among health pro-
viders. Improved treatment outcomes mean patients live longer with con-
tinuing health problems, increasing the need for information dissemina-
tion and retrieval among providers over a longer time frame. The health
value network is now comprised of many suppliers of goods and services
over an extended period of time. In addition, the increasing demands of
accountability for professional and management purposes has seen a dra-
matic increase in record keeping and administrative information flows.
Drug therapy constitutes an increasing proportion of healthcare inter-
vention, and this trend is expected to continue with the biotechnology
revolution now underway. New and more effective drugs are introduced to
market at a startling rate each year. This trend is itself changing the
use of delivery channels in health, as reduced length of stay in hospi-
tal is strongly associated with more effective pharmaceutical use.
The major issue posed by e-commerce in the service delivery channels is
the requirement to settle on a standard form of electronic record keep-
ing and to establish systems for storing and communicating information
which are appropriately authorised by patients and providers, which are
secure and reliable and which are efficient in the face of the differ-
ent contexts and requirements of the vast range of episodes of care.
Diagnostic pathology and imaging services Diagnostic pathology and im-
aging services are a widely used and rapidly growing part of the health
service picture. Although increased testing is a direct requirement of
new health treatments, there are considerable concerns about increasing
costs, unnecessary or inappropriate testing and multiple testing be-
cause of failure to share test information among health practitioners
and agencies.
Pathology and imaging services are rapidly consolidating and many ser-
vices are highly automated internally. There are currently several tri-
als of electronic messaging for ordering of tests and for communicating
results back to referring medical practitioners.
Advances in telecommunications bandwidth, data compression technology
and medical telemetry permit the positioning of imaging, testing or
other monitoring devices remotely from the person interpreting the in-
formation generated from these devices.
This is enabling developments such as: A specialist radiologist reviews
images in real time without being in the same location as the patient,
with consequent increases in patient and doctor convenience and reduced
costs; and Pathology testing or patient monitoring equipment can be lo-
cated in a patient's home, with information communicated automatically
to a supervising hospital or medical practitioner, permitting safe home
treatments like intravenous administration of drugs which would other-
wise require hospital admission.
Hospital services both public and private hospital systems in Australia
have information and communication systems of highly variable quality
and utility. Larger private and public hospitals have made some pro-
gress in basic computerisation of internal information functions but
the use of technologies for communicating externally to the hospital or
for supporting clinical transactions is generally primitive.
Innovative developments are often limited to one section of the hospi-
tal with little integration within an overall e-commerce strategy for
the hospital. A widespread weakness in change management for implemen-
tation of new information and communications tools for hospitals means
that many promising pilot studies cannot be replicated in the wider
system and that more than half of all hospital information technology
systems initiatives fail.
...A significant driver of change in hospital use of information man-
agement and communications tools for clinical care lies in the drive
for quality and safety. Worrying levels of adverse events are associ-
ated with medical treatment, with around 8% of hospital utilisation oc-
curring as a result of potentially preventable adverse events. Adverse
events are often associated with problems in information flows across
the boundaries between different episodes of care, or between hospital
and community care, or because of discontinuity in the provision of
care.
Hospital supplies involve significant wastage and delays, and a major
change in supply relationships is being promoted by electronic procure-
ment systems.
St Vincent's Hospital in Melbourne has already achieved significant im-
provements in cost and timeliness through electronic procurement, and
the Pharmaceutical E-commerce and Communications project has done sig-
nificant work on the architecture and standards necessary for wide-
spread adoption of electronic procurement of hospital supplies. The
Commonwealth Department of Health and Aged Care has recently commenced
a major mapping exercise of practice in this area across Australia.
Cost Savings as a result of electronic transactions
Efficiencies in procurement of supplies by health providers The Pharma-
ceutical E-commerce and Communication (PECC) project has estimated that
$340 million savings are available from full implementation of a range
of supply change management improvements using e-commerce. This is
based on extrapolations from a US survey showing that 23% of the cost
to hospitals of consumables is attributable to supply chain costs.
Efficiencies resulting from clinical quality/safety improvements There
are significant gains in health outcomes and decreases in "episode of
care" and whole-of-life costs arising from utilisation of e-commerce
tools in clinical care.
Preventable adverse events resulting from failures of information flow
among health providers account for eight % of hospital activity meas-
ured in bed- days. The cost of inappropriate use of pharmaceuticals is
estimated at $500 million per annum. Australian research shows that
general practitioners are unaware of 26% of the medications being taken
by their older patients, and amongst this age group adverse reactions
to medication is estimated to cause one third of emergency hospital ad-
missions.
...The rise of evidence-based medicine has seen the proliferation of
clinical guidelines by various authoritative sources.
........The primary e-commerce tools for improved clinical practice are
information management tools which provide practitioners with real-time
access to information needed in clinical decision-
making...............a necessary precondition for benefits to arise is
a system of electronic health records.
New costs the benefits of e-commerce in the health sector will only be
achieved if new e-commerce systems are implemented, and these will in-
volve some new intermediaries. The major issue for the Australian
health system, with its mix of public and private provision, is who
will pay for new facilities and who will control potentially powerful
gateways.
Control and financing of information management facilities the informa-
tion management applications discussed above presuppose powerful new
information systems: Patient information sys-
tems..................................................... Evidence-
based clinical decision support systems ........................
There are many commercial and public policy issues to be resolved be-
fore these new information intermediaries can operate in an optimal
way. They will be expensive to establish and there is little by way of
defined protocols and expectations and expectations for public, profes-
sional and commercial roles.
Control of these new intermediaries is very attractive in the longer
term and a range of commercial interests is pushing the envelope of
public sector policy and capacity to pay.
There is general agreement among expert commentators that the benefits
of these new intermediaries will far outweigh the costs. But the costs
will be considerable, the investment is required upfront and the prob-
ability that benefits can be captured is not yet well defined.
Control of electronic procurement, logistics and payment services Simi-
lar issues arise for electronic procurement, logistics and payment fa-
cilities. State public hospital systems are developing their own elec-
tronic procurement initiatives, but these may not be specified or im-
plemented in ways, which enable the maximum national efficiency divi-
dend from online procurement. Early entrants to the medical practice
logistics systems field are struggling with the issue of open and in-
teroperable standards in a context where returns on investment are un-
certain in the short term and exclusive arrangements with customers are
seen as an immediate remedy. And there are unclear lines of authority
and control in relation to the authentication, security and payments
systems, which will be necessary for rapid adoption of e-commerce in
the Australian health system.
In conclusion the globalisation of biomedical publishing and the devel-
opment of the health super sites funded by US venture capital pose a
considerable threat to Australia's health infrastructure.
At present it seems unlikely that the necessary coalition of healthcare
providers will form to keep control of the information infrastructure
of their industry. One possible scenario is the dominance of the Aus-
tralian health information management market by the big players -
Healtheon/WebMD, Medscape and the like. Indeed it will probably be at-
tractive to some health information providers to form such alliances.
Such a development is likely to retard the development of widespread e-
commerce in health in Australia. There is widespread evidence that
health information systems do not transfer well in different national
contexts.
It also seems unlikely that a public sector led model of health e-
commerce can be successful. There are too many fiscal and institutional
barriers in the existing roles of Commonwealth and State/Territory Gov-
ernments to permit the speed, flexibility and scale required if Austra-
lia is to have a native health information management system and asso-
ciated e-commerce capabilities.
The most likely outcome is therefore a systematic sub-optimal implemen-
tation of e-commerce in Australian health care.
This information has been abstracted from a report entitled "E-commerce
beyond 2000. Final report." Commissioned by the National Office for the
Information Economy (NOIE) in partnership with Australian Business Lim-
ited, Australia Post, ASX Limited, Blake Dawson Waldron, Central Queen-
sland University, Cisco Limited Australia, Ericsson Australia Pty Ltd,
Ford Australia, IBM, QANTAS, National Australia Bank, Telstra Corpora-
tion and Unilever Australia Limited.
The report also covers subjects such as: general practitioner services;
specialist medical services; community health and related community
services and new information channels to the public. Also issues such
as: sources of inefficiency and loss in procurement of supplies by
health providers and potential for savings in the pharmaceutical indus-
try etc.
Homira
The World Bank
1818 H Street,
NW, Wash.,
D.C. 20433
mailto:healthpop@worldbank.org
Tel:+1-202-473-2256
Fax:+1-202-522-3234
http://www.worldbank.org/hnp
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