As regulations and technology prompt the fee-for-service healthcare system to move toward a more value-based model, hospitals face rising costs, compliance burdens and safety and quality issues. With today’s emphasis on better clinical outcomes and improved patient experiences, Randy Bradley and Bogdan Bichescu, associate professors at the University of Tennessee, Knoxville’s Haslam College of Business, and their fellow researchers (Terry Esper, The Ohio State University; Joonwhan In, California State University, Long Beach; Kang Lee, Auburn University and Terry Byrd, Auburn University) recognize that hospitals must become better at anticipating and meeting increasingly complex demands.
Information technologies such as radio frequency identification (RFID) and electronic data interchange (EDI) are crucial for these improvements. RFID tracks assets in real time, so healthcare workers don’t need to search for equipment. EDI makes patient information readily accessible and shareable with third parties such as insurance companies. Typically, the two are used independently.
The analysts devised an analysis to quantify whether bundling RFID and EDI would improve outcomes over using either solution alone – a first for any operations management study. Further, because the two technologies are distinct but related entities with significant implications for value-based purchasing, they wanted to study their effects on supply chain cost efficiency, personnel expenses and hospital readmission rates.
Key Concept: Bundling and Leveraging
The team based its approach on Research Orchestration Theory, which suggests that the value of an organization’s resources lies in three sequential activities: acquisition, bundling and consistent leverage over time. They suspected the latter two would significantly affect hospital performance.
The researchers constructed three hypotheses:
- Joint use of RFID and EDI is associated with lower hospital supply costs and higher efficiency.
Why: RFID heightens situational awareness regarding assets, but that information must be shared up along the supply chain to achieve maximum effect. Combining RFID and EDI should create robust and speedy information exchange, ultimately lowering costs.
- Joint use of RFID and EDI is associated with lower hospital personnel expenses.
Why: Independently, RFID and EDI are each linked to higher labor efficiency. Hospital staff waste time and money searching for equipment, a cost RFID can shrink substantially. EDI allows personnel to eliminate time spent entering claim and invoice data. Because RFID generates data used by EDI, integrating the two technologies should lead to even greater efficiency.
- Joint use of RFID and EDI is associated with lower hospital readmission rates.
Why: One key indicator of healthcare quality is reduced readmission rates, which are thought to reflect how consistently hospitals adhere to discharge and transitional care guidelines. A single bit of patient information in the right hands can mean the difference between a minor follow-up phone call and an unplanned readmission. Combining RFID and EDI improves information accuracy and flow. It also indicates a hospital’s commitment to data capture and information exchange, a strategic approach that’s likely to produce better results across the board.
The team analyzed secondary data from 3,327 U.S. hospitals over eight years, a sample including about 60 percent of acute care facilities nationwide. They controlled for numerous variables, such as the differences among the hospitals’ service complexity and propensity for innovation.
The data supported all three hypotheses. RFID/EDI bundling was associated with significantly lower supply costs – compared to no association for RFID alone, and an association with higher costs for EDI alone. Costs rose for hospitals in the first year of joint use, and then fell 9 percent annually for every year of continued leveraging.
Similarly, in personnel expenses, bundlers saw a brief rise in costs followed by a drop; users of a single technology saw their personnel costs rise. Bundlers enjoyed lower hospital readmission rates after seeing no effects the first year. Users of only RFID saw no statistically significant effects. Users of only EDI saw a significant drop in hospital readmissions.
The researchers emphasize that they saw improvements mainly when the bundles were used over a long period of time. They speculate that this reflects the need to acquire experience in using the two technologies, and the gradual accumulation of more accurate records that compounds efficiency over time.
“The Joint Use of RFID and EDI: Implications for Hospital Performance,” published in Production and Operations Management, Vol. 27, No. 11, is the first study to show such results for healthcare, offering a new point of departure for further research and giving hospital administrators guidance on how the benefits of bundling will accrue.
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