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Supply Chain Focus by Hospitals Is on Cost of Devices

U.S. hospitals spend tens of billions of dollars annually on high-tech surgical implants. But the supply chain for the devices is anything but high-tech. And that drives up costs both for hospitals and implant makers.

Now, some hospitals and medical-device companies are teaming up to modernize and automate the supply chain. They're aiming to bring down costs under pressure from Medicare and private insurers—pressure that is expected to intensify with the continuing implementation of the federal government's health-insurance overhaul this year.

Johnson & Johnson JNJ and Medtronic MDT Inc., the two largest U.S. makers of implantable medical devices, are among the companies collaborating in a pilot program with four hospitals to use an experimental software system developed by Global Healthcare Exchange LLC for the ordering of implants.

One problem with the traditional ordering system is that much of it is manual. For instance, in many cases, operating-room nurses peel barcode stickers from empty product boxes during surgeries, paste the stickers onto a clipboard and later type the information into an order form that wends its way through the hospital's administrative channels. Suppliers also do much of the paperwork for orders manually, and complications often arise when someone on either side of the transaction incorrectly records a product code. The transmission of orders and bills is often done by fax.

"Hospitals don't appreciate the cost of these back-office operations, and device makers haven't had to think about it because their profit margins have been so great," says Steven Chyung , vice president at Sisters of Charity Leavenworth Health System Inc., a nonprofit based in Denver that is using the new software. But, now, he says, "we're all in a declining reimbursement situation."

The software lets operating-room nurses or other hospital personnel electronically scan the barcodes of surgical implants to generate a purchase order and invoice automatically.

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