Seven Deadly Sins in Cath Lab Material Management

Martijn Teulings is an Integrated Health Solutions (IHS) managing consultant at Medtronic. In this role, he gained experiences at cath labs in the UK, Denmark, Netherlands, Germany, and Italy.

Acutely aware of the need to balance access and cost of treatment with high quality of care, Medtronic created IHS, a new business unit to support our customers beyond devices and to optimize outcomes, improving quality of care, operational performance and financial returns. IHS offers a broad array of solutions across the care continuum, focusing on clinical departments where we have a strong heritage and knowledge. Solutions for excellence in cardiac services is one of our key offerings and includes material management. In Europe to date, more than 30 cath labs have selected Integrated Health Solutions to manage the full scope of their cath lab material management operations. Martijn has been leading the design of the end-to-end material management processes and the implementations at cath labs in the UK. For more information, email: Martijn.Teulings@Medtronic.com or IntegratedHealthSolutions@Medtronic.com

Abstract

This article describes seven deadly sins related to cath lab material management. Many cath labs in Europe suffer from a few of these sins. For a medium-sized cath lab, the yearly potential loss is equivalent to 5 to 10 annual nurse salaries. Fixing the shortcomings results in reduced inventory levels, lower product waste levels, less firefighting, improved staff satisfaction, more mature processes, system-supported product traceability, and ultimately more clinical time for patients.

Background

Healthcare costs are increasing around the world while governments are cutting hospital budgets. Approximately 70% of the hospital costs in Europe are staff-related, resulting in increased focus on efficiency, automation and lean deployment. Conversely, since material costs cover just 10 to 20% of total hospital costs, little attention is given to material management beyond purchasing. For most hospital departments, this approach may be justified; however, for cath labs, the approach should be different: after all, 50% of cath lab costs are material costs*!

In practice, materials in cath labs and in other hospital departments are managed in a similar way. Because the focus is on clinical performance, inventory management is typically handled by non-specialized staff. Most processes are manual with limited system support. Performance monitoring is minimal and the yearly compulsory cycle count is a burden. Inventory levels are unknown and often cover two months of demand or more, and yet emergency deliveries are frequently required. The invoices that suppliers send are paid after a high-level check, without confirmation per invoice line that the invoiced products have indeed been ordered and received. There is neither a system trigger for products that will expire soon, nor a system that keeps track of expired, damaged and lost products. Product waste levels of >4% of the annual material consumption value are not exceptional¹, easily representing a value of half a million Euros ($568k) per year for an average 4-lab cath lab. Cath lab management is usually not aware of these significant improvement opportunities.

This article identifies seven deadly sins in cath lab material management (Table 1) and suggests ways to improve. The reference in this article is a 4-lab cath lab performing 4,500–6,000 procedures per year, with a typical mix of procedure types: angiography, percutaneous transluminal coronary angioplasty (PTCA), tachy/brady, congenital, electrophysiology/ablation, valve, etc.

Deadly Sin 1: Poor physical storage organization

Good inventory quality means having the right mix of materials in inventory in the right quantities. All materials are fresh (not expired), damage-free, and at the correct locations, such that staff can locate these products immediately when required. Pre-conditions for good inventory quality are: 

−    Sufficient and proper storage
facilities (racks, shelves and bins);

−    A plan where to store which product;

−    Accurate shelf labels;

−    Central storage of medium and high value products;

−    Staff trained in and using good storage practices.

Without satisfying these pre-conditions, staff wastes precious time looking for products, material waste levels are higher than necessary, and it is difficult to perform accurate cycle counts.

It is also important to have access control, especially to the areas where high-value materials are stored. Best practice is that for each storage room, a nurse is responsible to keep inventory organized and to prevent theft.

The area to receive and book in products in a material management system needs to be sufficiently spacious (>10m²) and within a 10 to 15-second walking distance² from storage rooms and labs.

Deadly Sin 2: No product rationalization & no product catalogue

A pre-condition to control the flow of materials is to have a list of approved product types, with accurate values for basic master data fields such as manufacturer, product name, product description, product category, and pack size. This list needs to be maintained, i.e., product types need to be added when requested by a device committee and need to be removed or set to obsolete when the product type will no longer be ordered.

In many situations, product preferences of individual physicians are added to the product catalogue without justification, leading to several product types in inventory for the same purpose. While it is sensible to have a backup for key product types, many cath labs have more than three entire ranges of drug-eluting stents in inventory from several manufacturers. As each range of stents contains roughly 45 product types, hundreds of additional product types are in the catalogue and hundreds of additional products are in inventory. This increases inventory value, storage space requirements, and expiration risk of products (especially those with exceptional sizes), and reduces buying power with suppliers. The same holds for balloons and other products. Related annual preventable cath lab costs are easily ?50k ($56,800).

Deadly Sin 3: Lack of supplier management & order strategy

Supplier management

Many cath labs have limited focus on supplier management. As a result, cath labs with more than 50 material suppliers are common. The consequences are costly: infrequent and small shipments, less buying power (poor negotiation position), and high administration costs, i.e., costs to place orders, costs to follow-up in case of non-conformities, costs to check and pay invoices, costs to measure and evaluate supplier performance. On top of that, the service expected from a supplier is higher when the purchased volume is larger (partnership).

Best-practice hospitals have rationalized their supplier base, manage a list of preferred suppliers and have service level agreements (SLAs) with suppliers. These SLAs cover topics such as lead time, delivery performance, remaining shelf life for ordered products at arrival, and return conditions. Obviously, supplier management costs decrease with the number of suppliers. This is just one example of how better procurement practices help hospitals achieve supply cost reductions.³

Consignment policy

A consigned product is a product that is physically in inventory at a cath lab, while the ownership of the product is still with the supplier. The product is bought by the cath lab after consumption. The burden of the inventory capital is with the supplier as well as the risk of expiration, damage, and theft. Also, product returns are fully under the responsibility of the supplier. These benefits for the cath lab seem great, but are not free. Related costs and risks are reflected in the product price. In practice, these pros and cons are not always taken into consideration when consignment decisions are made.

Order strategy

In some cath labs, all materials follow the same replenishment logic: a product is ordered when a nurse or physician decides to have it replenished. Experience is the main driver for these replenishment decisions. However, implantable cardioverter defibrillators (ICDs), stents, and gloves have different profiles from value, traceability requirement, and quantity of usage perspectives. Therefore, these require different order strategies.

Examples of best-practice order strategies:

−    High-value ICDs are ordered per scheduled procedure.

−    Stents are kept in inventory. An order for a specific stent type is triggered every time a stent of that type is used (replacement logic).

−    Clinical consumables such as masks, gloves, needles, and syringes are kept in inventory and are used by all hospital departments. Best practice for these low-value and generic products is to purchase them on hospital level and to replenish cath lab inventory weekly, based on visual management or on a 2-bin KanBan⁴ system.

Generating product requests

In many cath labs, the determination of what product types and how many items to order is a manual process. As a result, the order quantity is based on experience and differs from one person to the other. Often, the order frequency per product type is once a week.

In best practice, a material management IT system automatically generates order proposals and enables daily ordering. Minimum and maximum par inventory levels per product type are set in a material management system. If the inventory level of a product type drops below the minimum par level, the system automatically generates an order proposal to replenish to the maximum par level. An operator reviews the proposal, adjusts it if required and approves. The minimum and maximum par levels are determined based on historic consumption patterns, lead times, and target service levels, following inventory control logic.⁴ As a result, efficiency of the order process improves, average inventory level reduces, product availability increases, and the process becomes less people-dependent.

Table 2 shows best practices logics for material replenishment per product group.

Placing orders at suppliers

In some cath labs, material requests are collected on paper notes that are sent to the purchasing department. These requests are entered in a hospital information system. Material orders are sent to suppliers by fax or by e-mail as a PDF. These days, more and more hospitals use e-commerce solutions (e.g., Global Healthcare Exchange [GHX]) that connect with supplier systems. The hospitals tap into the supplier catalogues, select the product types and place the order. This reduces workload and mistakes, and increases replenishment speed. This system connection needs to be set up per supplier, which reinforces the benefit of focusing on a limited set of preferred suppliers.

The number of order lines for a cath lab with four labs is roughly 10-15,000 per year. Even if the processing time per order line is just a few minutes, this easily justifies an investment in system interfaces with main suppliers.

Deadly Sin 4: No validation of receipts 

Tracking receipts

Roughly 30,000 products are delivered annually to a typical 4-lab cath lab. Per working day, this is about 120 products, representing as much as an annual nurse salary. Therefore, a systematic check of the received products is essential.

Products arrive at cath labs in cartons. Assuming an average of five products per carton, this equates to around 24 cartons per working day.

Each carton is accompanied by a delivery note that contains a list of the materials in the carton. An operator should check:

−    Was the carton indeed delivered at the correct address?

−    Are the products listed on the delivery note indeed in the carton?

−    For each product in the carton:

•    Was the product type and quantity indeed ordered?

    The pick and pack accuracy at the main manufacturers is very high, ranging from 99.5% to 99.8%. This still means that 60 till 150 products per year are supplied wrongly, i.e., several products per week.

•    Any product damage?

•    Is remaining shelf life at arrival satisfying the SLA?

For any discrepancy, an action should be triggered. Quick response to the supplier is important, as most suppliers allow products to be returned if the return request is announced within three days after product arrival.

In practice, these checks are usually ad hoc and visual, without system support. The impact can be costly. After all, even a small discrepancy of 0.5% may mean a loss of ?50k ($56,800) per year.

Open order book

Frequently, it happens that ordered products arrive late, incomplete, or not at all. Some manufacturers proactively inform hospitals on shortages or late deliveries; however, most do not. The cath lab needs to keep track of open orders. In practice at cath labs, this is a manual process, heavily dependent on the memory of staff and spreadsheets. As the number of order lines for a medium-sized cath lab is 10-15,000 per year, this manual process is simply not reliable.

Deadly Sin 5: Absence of a material management IT system

From a product traceability point of view it is important to keep a continuous inventory record of materials in product groups 2, 3, and 4 (Table 2). After all, in case of a recall or complaint, a cath lab needs to be able to locate and isolate impacted materials. This means that all material transactions need to be tracked: product type, lot/serial number, and quantity. This does not necessarily require advanced (and expensive) radiofrequency identification (RFID) solutions. A material management module with simple bar code scanners can do the job. The University Hospitals of Leicester Trust in the United Kingdom reports a return on investment of a few months of implementing such a system.²

In all cath labs, usage of implantables should be tracked in clinical systems for the purpose of clinical traceability. However, these are often not linked to a material management system. Besides, implantables cover “just” around 15% of all material items that are used in procedures.

A material management IT system brings order efficiency, provides inventory transparency, makes product availability less people-dependent⁵, and reduces the need for (re)active firefighting. Firefighting results in lost nurse capacity, stress on the shop floor, emergency orders, taxi deliveries, and borrowed materials from other departments and hospitals, all costly.

Inventory performance

For a 4-lab cath lab, the value of the inventory is a few million Euros/USDs, often covering more than two months of material consumption. Best-in-class cath labs have six weeks of coverage or less.⁶ This means an inventory value difference of 30% or more. The capital costs of the difference in inventory value amount to ?50k -?100k ($56,800-$113,600) annually. On top of this, storage space may be freed up which costs roughly ?2.5k/$2.8k per square meter.

The 10% of fast-moving products are not exposed to risk of expiration, but the 90% of slow-moving products are exposed. If product expiration is not explicitly managed, waste levels easily exceed 4% of the annual material consumption value¹, i.e., roughly ?500k/$568k per year for a 4-lab cath lab. As performance monitoring on material management is often minimal, cath lab management is usually not aware of this. Continuously tracking inventory levels in a material management IT system, setting inventory targets according to inventory control logic⁴ and active expiration management are the key factors in reducing waste levels to less than 2% of the annual material consumption value, i.e., a potential savings of roughly ?250k/$284k per year.

Comparable benefits by implementing a material management IT system were achieved at the cath lab of the University Hospitals of Leicester Trust (United Kingdom) and at the cath lab of Skåne University Hospital (Malmö, Sweden).²

Cycle count

Most material management IT systems have a module to facilitate cycle counts. Cycle count is often perceived as a tedious and cumbersome exercise. If the cath lab is not keeping a continuous inventory record, each cycle count is a blind cycle count, performed only for accounting purposes. When the cath lab keeps a continuous inventory record, a cycle count is a check of actual inventory versus the inventory recorded in the system. This provides a valuable measure of the quality of the inventory management processes.

Consignment

In case of consignment inventory, the ownership of the materials in inventory is with the supplier and transfers after consumption. The supplier needs to be informed of the material consumption, i.e., the product type, lot/serial number and quantity. Often these details are collected from product stickers or directly from empty material packaging, and then sent to the supplier by e-mail. This is a labor-intensive process and subject to mistakes. Therefore, cath labs tend to limit the scope of consignment materials. A material management system facilitates the transactions, improves the transaction accuracy, and removes manual work.

Material management IT landscape

Today’s healthcare IT landscape offers several systems for material management. Most CVIS (cardiovascular information systems) offer a material management module. Examples are Tracer/CardioReport from MediReport, Centricity Cardiology Inventory Management from GE Healthcare, and Enterprise Content Manager from McKesson. Also, SpaceTRAX from Stanley Healthcare and GHX Powergate offer material management modules. The level of integration of material management modules with hospital and clinical systems, and with national registries, differs from one module to the other.

Deadly Sin 6: Insufficient financial controls

Suppliers send invoices to hospitals for the products supplied/consumed. The accounts payable (AP) department of the hospital receives the invoices and makes sure that these are paid, respecting the agreed-upon payment conditions. Before paying an invoice, the AP department needs to have evidence that an invoiced product was indeed ordered and received: this is called the 3-way match. Without a 3-way match, the hospital may pay for materials never received, or received, but not ordered. For a 4-lab cath lab, the annual number of invoice lines is 10-15,000. Currently, at many cath labs, this 3-way match is a manual process, making a 100% match a challenge. The related financial risk is significant.

Cath labs are competing in the market; they often operate on yearly budgets and sometimes have profit targets. As material costs account for 50% of the cath lab costs, it is important to monitor and track material consumption per procedure per procedure type, related material costs, and profit and loss impact. Without these insights, it is difficult to focus on material consumption, to drive financial performance of a cath lab and to manage the future mix of procedure types.

In most countries in Europe, hospital reimbursement is based on DRG-systems (diagnosis-related group). In some countries (e.g., United Kingdom, Denmark, France), part of the reimbursement is linked to actual materials consumed. In these cases, accurate material consumption logging is crucial for the cath lab’s income. If not tracked accurately, the cath lab loses income. In our work, we came across a cath lab with an income loss of multiples of ?100k/$114k per year.

Deadly Sin 7: Unclear material management organization

Material management is a necessary and important task, but not a core competence of the majority of people in cath labs. Material management tasks are often scattered among many people, often nurses. In many cath labs, all material management tasks combined cover a workload of more than 2 FTEs (full-time equivalent employees): determination of what products are required, entering requests in a system, maintaining an open order book, chasing suppliers, receiving materials and putting them on the shelves, returning products, checking and paying supplier invoices, logging of consumption details for consigned products, logging details of implantables for clinical purposes, registration in national registries, cycle count, check for expiration, performance tracking, and so on.

At the same time, nobody is responsible for product availability, and for keeping inventory and waste levels low. Performance indicators and targets are often not clearly defined or tracked, and trends are not monitored, leaving management and operational teams blind as to where to drive measureable improvements in this area.

Best-in-class cath labs have dedicated material management operators, who have a background in logistics and operations. These operators are responsible for product availability, inventory quality, and inventory performance. They work closely with physicians, nurses, cath lab planners, the hospital purchasing department, in- and external suppliers, sales representatives from suppliers, and transporters. Material management performance indicators are clear, and the actual performance is measured against a target performance and published periodically in a dashboard.

Conclusion

Best-in-class cath labs do not suffer from the seven deadly sins presented here. These cath labs have proper infrastructure to store products and use a material management IT system, managed by dedicated material management staff. Barcodes of products are scanned at arrival and at consumption to keep a continuous inventory record for all products on lot/serial number level. The number of product types in the product catalogue, as well as the number of suppliers, is managed. Financial controls and key performance indicators (KPIs) are in place to effectively manage performance, and provide the necessary information to make correct strategic and tactical decisions. Inventory levels cover 6 weeks of usage or less, and waste levels are less than 2% of the consumed material value.

In practice, many cath labs in Europe suffer from at least a few of the presented seven deadly sins. For a medium-sized cath lab, the potential yearly improvement is usually equivalent to 5 to 10 annual nurse salaries. The return on investment of the required resources to fix the shortcomings is typically a few months. Beyond the financial savings, benefits include less firefighting, improved staff satisfaction, more mature processes, system-supported product traceability, and ultimately giving clinicians more clinical time for patients. 

References

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