By Bede Broome, Thomas Ebel, Katy George,
Erik Larsen, Ketan Shah, and Drew Ungerman of McKinsey & Company.
Imagine a world where a patient’s records capture the brand,
dosage and lot number of each drug and medical device she uses, along with the
name of the physician who ordered the product and the nurse who administered
it; where bedside scanning confirms that she gets the right product in the
right dosage at the right time; where hospitals and pharmacies know the exact
location of medical devices and drugs and when they can be delivered; where
regulators can recall adulterated products with accuracy and speed from every point
in the supply chain; and where manufacturers can monitor real-time demand
changes and shift their production schedules accordingly.
In this world, patients would enjoy safer and more effective
healthcare and shorter average hospital stays. Redundant activities and costs
would fall – reducing the cost of healthcare to society and enabling broader
patient access to cutting-edge technologies. Doctors and nurses could spend
less time with paperwork and more with patients. Innovation could blossom in
personalized medicine, customized devices, and mobile health.
This world is technologically possible today. But it has yet to
become a reality because the healthcare supply chain, from manufacturer to
patient, remains fragmented. Certain channel partners are collaborating, and
individual companies and even countries are making progress with cutting-edge
practices. But only widespread adoption will permit significant, cost-effective
improvements at scale. To achieve the kinds of benefits we describe, the
healthcare industry could align around a single set of global standards, just
as the consumer and retail industries have created billions of dollars in value
with their adoption of GS1® barcoding.
New research by McKinsey & Company, conducted with the participation
of more than 80 healthcare industry leaders around the world, has estimated the
potential value – in lives and dollars – of adopting a single global standard
in healthcare. This article is a summary of key findings as they relate to the
hospital sector – please contact the authors for a copy of the full report.
Global standards
could be a critical enabler to improving the safety and quality of patient care
in a cost-effective way. Our analysis
suggests that these standards have greater potential to improve care and save
resources if they are truly global and adopted by all stakeholders, including
manufacturers, distributors, wholesalers, pharmacies, and providers.
Global standards could enable industry-wide applications and processes that
improve patient safety and supply chain efficiency:
■Reduction in medication errors. Medication errors can lead to adverse
drug events, which lead to thousands of deaths and millions of short- and
long-term disabilities every year.We estimate bedside scanning of
products barcoded with global standards across the entire healthcare supply
chain could save 22-43,000
lives, avert 0.7-1.4 million patient disabilities, and save $9-58 billion globally
in healthcare costs each year.
■Targeted
full recall administration. Today,
the industry cannot generally track recalled products across the value chain in
an automated way, leading to largely manual and therefore inefficient,
ineffective and costly recalls, causing waste and threatening patients. Implementing
global standards and supporting IT infrastructure and processes, could improve
recall processing in three ways: freeing clinical staff to spend less time on
recalls and more on patients; minimizing product waste; and improving patient
safety by pinpointing affected products and patients more quickly.
■Medication receipt authentication. Counterfeit
drugs represent a major and growing problem for public health and the industry.
Implementing global standards could help fight counterfeit medications, as
serialization, traceability, and authentication could catch duplicative and
unauthorized serial numbers. Global
standards could be an important enabler to help prevent tens of billions of
dollars’ worth of counterfeit drugs from entering the legitimate supply chain,
resulting in significant improvement in health outcomes.
■Supply chain efficiencies. The healthcare supply chain doesn’t have good
transparency and still relies on a considerable amount of manual processes,
which are time-consuming and error-prone. Global standards can help by enabling
greater supply chain visibility and automating certain data gathering and
processing steps (e.g. order processing, record updates, etc.). We estimate
that improvements in inventory management and business processes could lead to
annual savings of $30-40 billion globally.
For a hypothetical hospital with 300 beds and $300 million in revenue, the
impact of implementing global standards (and the necessary system and process
changes) could be significant. To reap the maximum benefits, we estimate annual
savings up to $2.5-4 million annually, which include about $2 million up front investment
and about $0.25 million annual cost to establish the necessary capabilities.
With these assumptions, the 10-year benefit/cost ratio is about 5-10x, and at
the same time increases quality and safety of care.
To realize this potential, healthcare industry leaders will need to work
across competitive and customer-supplier relationship boundaries to agree on a
common vision and approach. Customers, vendors, competitors and regulators will
have to act and collaborate in new ways. Large
hospitals, as well as industry associations and GPOs, might consider defining
requirements and driving adherence to global standards up into the supply chain
through their interactions with suppliers and distributors. Since hospitals can
also integrate pharmaceutical and medical device technology segments, they have
the most to gain from global standards.
The healthcare industry is at a crossroads, and our research suggests
that the case for alignment on a single global standard is compelling for the
industry as a whole and for representative players. More important, aligning on a single global
standard would save lives and avert medication and device errors. This is a true win-win opportunity: the
industry and patients would benefit enormously
About the authors: Thomas Ebel, Katy George, Erik Larsen and Ketan
Shah are leaders in McKinsey & Company’s Pharmaceutical Operations practice.
Bede Broome and Drew Ungerman are leaders in McKinsey & Company’s Provider
Operations practice.
Please contact Erik Larsen (erik_larsen@mckinsey.com)
for a copy of the full report, or to download it from the McKinsey website click here.
