Doctor's Note (March): Supply Chain Makes a Difference in Hospitals Too

Hospitals in the US have many objectives, but rarely do they have a clearly defined mission . . .

Bypass surgery costs between $35,000 and $50,000 in the US. The same surgery costs about $4,000 in India. Given that President Obama is launching a national initiative to provide better health care, it makes sense to see how other countries can deliver quality care at a fraction of the costs. It might surprise many people that much of the cost differential cannot be explained by personnel costs alone. It is also tied to how the hospitals operate their supply chains.


Some of you know that I elected to have heart bypass surgery last month in India. My observations are based on this experience. The hospital that I chose was not one that catered primarily to foreigners. In fact most of its patients are indigent and end up paying only a partial amount of the bill. Insurance as we know it in the US is simply unknown.

The first difference that I found is that the hospital has a well defined business goal which is to provide good quality cardiac care to as many people as possible. Paying customers like me simply facilitate this by providing the revenue. Hospitals in the US have many objectives, but rarely do they have a clearly defined mission. This is analogous to what we find in companies that operate an efficient supply chain. The companies that operate efficiently know exactly what they want to achieve. More importantly, the organization's mission is communicated and reinforced continuously.

Secondly, the tactical treatment processes are well defined and structured. There are distinct stages like diagnosis, treatment design, treatment execution, and rehabilitation. Compare this to the system in the US where the hospital is normally regarded as the provider of resources like wards, beds, operating theaters, with each cardiologist defining and managing their own process for each patient.

Having a process centric view allows for a more efficient allocation of resources. For example, diagnosis and treatment design require highly skilled resources. It does not make sense to use these resources heavily in treatment execution or follow -up because these functions require very different skills. In the US, we expect the cardiologist to be a good diagnostician, a solution designer, and also an execution expert. This is like expecting a car designer to also be a good mechanic.

The process centric view allows the hospital to:



• take advantage of other supply chain best practices like "zero-inventory." For example, medication is distributed to the wards using a "kanban" type of process with each Kanban essentially being the daily requirement for a ward




• provide for clear accountability and handoff of the patient from the ward to surgery to after care




• maximize the utilization of expensive equipment and resources


The results of the streamlined supply chain are evident. The hospital manages to operate on 40 or more patients per day - day after day - at a fraction of the cost in the US.