Leveraging industry standards can help drive revenue for medical device manufacturers.
Major group purchasing organizations (GPOs) and healthcare providers in the United States have called on the healthcare industry to begin using GS1 Global Location Numbers (GLNs) by December 2010. In just a few months, medical device manufacturers will be expected to use GLNs to identify their customers, as well as the ship-to and bill-to locations in their supply chain transactions and trading partner business communications.
GLN implementation poses a variety of challenges to device manufacturers, such as correctly identifying customers and ensuring internal systems can accurately manage the new standard. The process also presents a significant opportunity for manufacturers to leverage the GLN for improved customer insight and market intelligence. By using a universal standard to identify customers and their locations, manufacturers can better define who is purchasing products and which products are being purchased. Furthermore, a variety of market intelligence sources can be associated to the unique GLN to obtain detailed financial, demographic, and clinical information, enabling manufacturers to identify new sales opportunities and drive revenue.
The aim of this article is not to endorse the standards of one particular standards body over another. However, there is significant market movement toward GS1 standards globally. This article presents background on the GLN and its proposed use in healthcare supply-chain transactions and trading partner business communications, as well as on how medical device manufacturers can leverage the GLN to reduce operational expenses, generate revenue, and provide better customer service.
The healthcare supply chain has long been plagued by errors and inefficiencies in business transactions between trading partners, resulting in lost revenue, increased operating expenses, and missed opportunities for savings and growth. The lack of standardization—in both systems and data—is a root cause of such problems. Healthcare providers, manufacturers, distributors, and GPOs often identify each other in different ways, depending on the business process being executed and which system or application is being used to execute the business interaction. For example, it is common practice for manufacturers to assign multiple proprietary account numbers to the same provider location. This practice is in place for a number of reasons, including to manage individual accounts-payable contacts located at the same bill to address, or to track particular sales activities for accurate commission calculations and reporting.
As a result, the same location within a hospital (a single physical address, warehouse location, receiving dock, or nurse’s station) can be identified in many different ways within a manufacturer’s systems. Considering that there may be as many as four organizations—GPO, manufacturer, distributor, and provider—in a business transaction, there is a multiplier effect that can result in a single provider location being identified in hundreds of different ways.
|Click here to read a Q&A with Aberdeen Group vice president, David Hatch|
Research from Aberdeen Group, conducted exclusively among healthcare providers as well as medical equipment and supply manufacturers and distributors, reveals that data management is the number one challenge to obtaining greater business efficiency and visibility. Forty percent of survey respondents listed this business pressure as the top hurdle they are facing when it comes to improving business efficiency and reducing unnecessary costs.
To address this issue, GPOs and major healthcare providers have asked trading partners to begin using GS1 GLNs in business transactions. The GLN is a 13-digit, globally unique number managed by the GS1 standards organization that can be used to identify a functional entity (such as a hospital), a physical entity (such as a warehouse), or a legal entity (such as a health system). Each GLN is specific to one very precise location in the world.
There are two ways that providers can enumerate their organizations and physical locations with GLNs. The first is for the provider to enumerate itself within the GS1 U.S. GLN Registry for Healthcare. In this instance, the provider would subscribe as a GS1 member to gain access to the registry. The provider would then enter into the registry the location information associated with its functional, physical, and legal locations for which it requires GLNs. Once entered, GS1 would assign the location information a GLN, and the provider would validate the association between the GLN and location. Once enumerated, the provider would then notify its supply chain partners (GPOs, manufacturers, and distributors) of the issued GLNs, and the provider’s trading partners would, in turn, input the GLNs into their internal systems for use in identifying the provider in the provider’s requested business transactions.
Another way that a provider can enumerate with GLNs is through its GPO. Several GPOs have purchased blocks of GLN identifiers from GS1 and enumerated members on their behalf. In this case, the GPO enters member roster information into the GS1 U.S. GLN Registry for Healthcare, and GS1 assigns GLNs based on the GPO-provided information and notifies the GPOs of the enumerated providers. The GPO then alerts those newly enumerated providers of their assigned GLNs and the providers sign into the registry to validate the locations that have been enumerated by the GPO.
Supply-chain partners must take into consideration that GPO-assigned GLNs for providers are not official public record until the provider validates the GPO enumeration within the registry. Also, providers can add locations not contained within GPO rosters, as well as delete and alter the GPO enumeration within the registry. Once the GLNs are validated, the GPO then sends its supplier partners an updated GPO membership roster containing the GLNs for providers with which they have contracts.
It is also important to note that GLN enumeration can become a challenge when a provider is a member of multiple GPOs. If two or more of a provider’s GPOs enumerate it with GLNs on its behalf, the provider could potentially end up with multiple GLNs for the same functional, physical, or legal location. If suppliers receive updated membership rosters from these GPOs, they will have to undergo an added step to determine which GLNs the providers intend to use in business communications.
Some healthcare industry participants are taking a wait-and-see approach to GLNs—waiting for customers to recommend or require GLN usage before they take steps to prepare their internal systems and processes to use GLNs in place of proprietary account numbers. But postponing standards adoption could result in manufacturers not being able to support their customers’ requests for alternative identification, as well as delay realization of the additional business benefits that could be derived from standardizing customer data.
|Healthcare supply chains exhibit a tendency to use internal data standards, according to research from the Aberdeen Group. Moving to data standards could help them to better serve customers.|
Research conducted by the Aberdeen Group confirms that healthcare supply-chain partners have a strong tendency toward using internal identifiers, although the use of data standards, such as GLNs, is on the rise among top-performing healthcare companies (see Figure 1). More forward-thinking manufacturers have recognized that they can leverage the GLN and other standards to reduce operational expenses by improving the accuracy of transactions and streamlining interactions with trading partners. Furthermore, by linking standard customer identifiers to key demographics and clinical demand data, manufacturers can generate revenue by uncovering new sales opportunities and helping distribution partners focus on customers that are most likely to buy.
Clean customer data are critical to the success of any standards implementation, be it the GLN or another identifier, such as the Health Industry Number (HIN) system. In many cases, manufacturers are functioning with disparate systems for manufacturing, sales, marketing, and finance. While a manufacturer’s enterprise resource planning (ERP) system might contain address 123 Main St. for St. John’s Hospital, its customer relationship management (CRM) system might list St. John’s at 345 Main St.
If a manufacturer’s ERP, CRM, and financial systems are not in sync, the manufacturer must perform a physical cross-reference of its various systems to address duplicates and discrepancies in order to have accurate and reliable visibility across the organization as to who their customers are and what they are buying. Furthermore, if this cross-reference activity is undertaken, it is an excellent opportunity to append customer-requested standard industry identifiers, such as GLN.
If a manufacturer chooses to perform this process on its own, hours of manual data entry may be required to ensure that all systems are functioning with accurate data across the board. If not staffed appropriately, a manufacturer may find itself with incomplete, inaccurate, or unreliable customer master data. Third-party vendors can also simplify or automate this process for manufacturers.
Once a manufacturer has cleansed its customer data, it can then propagate all of its internal systems with GLNs or other standard identifiers for customer locations so that every department or function has access to the same, up-to-date customer data. So when a healthcare provider changes a location, a manufacturer can simply update a single customer record within its system. It ensures accuracy and consistency and avoids the costly duplication of data that is required with proprietary account numbers.
Currently, a manufacturer might have multiple proprietary account numbers assigned to a single ship-to or bill-to location within a hospital. When manufacturers, distribution partners, and their customers use different numbers to identify the same location, it can result in a broad range of errors and discrepancies that add time and labor to the process. It can also slow the flow of goods through the supply chain, impede the identification of customer support needs, and ultimately delay prompt payment.
The GLN enables manufacturers to streamline the purchasing process with customers. With providers enumerating ship-to and bill-to locations with GLNs, and requesting that their supply chain partners use the GLN in business transactions, manufacturers can now view customers as they view themselves. A manufacturer can process purchase orders from providers that contain the providers’ GLNs and, in turn, respond with purchase order acknowledgements and invoices that contain the appropriate GLNs for the providers’ ship-to and bill-to locations. By using a standard identifier to identify a single location, manufacturers can ensure that products are being shipped to the correct ship-to locations and that invoices are being delivered to the correct bill-to locations. The result is reduced discrepancies, better-served customers, and reduced days sales outstanding (DSO). As a result of GLN implementation, Mayo Clinic and Cardinal Health have achieved 99.5% price accuracy, while Mayo Clinic’s price accuracy with its other suppliers averages 95%.1
By the December sunrise date, some GPOs will recommend that manufacturers use provider GLNs in their administrative fee reporting. Preparing systems to store and report on provider GLNs will not only enable manufacturers to comply with GPO requirements by the sunrise, but will also likely improve the accuracy of fee calculation.
Currently, many manufacturers struggle with accurately calculating administrative fees for GPOs because it is difficult to identify which customers are eligible for which contracts and at what tier they are eligible. The problem is compounded when a GPO identifies healthcare facilities and their various locations by one set of numbers, the manufacturer identifies the same facilities and locations by its own set of proprietary numbers, and distribution partners use a third identifier. Manufacturers spend a great deal of time and effort trying to determine contract eligibility and correct pricing, and inaccurate payments can occur due to the complexity in identifying a customer.
During the GS1 Minnesota GLN pilot program, conducted at the three largest hospital systems in the Minnesota area, it was discovered that one provider’s manufacturer and distributor had assigned 3400 location numbers to the provider’s facility, while the provider’s GPO had originally assigned only 142 GLNs to the same facility.2
If GPOs, manufacturers, and distribution partners use the same provider-validated GLNs to identify customer organizations and facilities, manufacturers can consistently reference the unique customer-requested GLN and identify the customer in the way that the customer wants to be identified. This improves the accuracy of the administrative fee reporting process. Furthermore, by being able to accurately identify providers as they are represented in their GPO's roster, manufacturers can pinpoint which customers and specific locations are eligible for exactly which contracts and the tier levels of each contract. Such action has the potential to improve GPO fee accuracy and prevent costly and time-consuming audits.
Manufacturers face a similar issue with distributor partners when trying to validate contract pricing for rebates and chargebacks. Industry research shows that up to 9% of revenue is lost due to penalties, missed deadlines, inconsistent pricing, and transactional errors.3
A major problem in this process can be tied to duplicate identifiers for the same facility. If a distributor’s sales report contains different identifiers for the same location (for example, St. John’s Hospital is also listed as Saint John’s Hospital and St. Johns Medical Center). Because of this, a manufacturer faces an uphill battle to determine whether these are all the same facility, and if so, the contract and tier for which it is eligible.
Manufacturers will soon be able to map the GLN across all of their distributor partners to match contract eligibility information. With the GLN, a manufacturer can identify a specific provider location and determine its primary GPO and the contracts for which it is eligible. As a result, the manufacturer could potentially spend much less time determining contract eligibility, as well as reduce costly errors and exceptions. In addition, the GLN provides a manufacturer with a source of proof when it disputes a distributor’s claim by enabling it to point to a common source of information for contract eligibility.
Standardizing customer identifiers is a crucial step for a manufacturer to better understand who its customers really are and what they are purchasing. It all starts with a manufacturer cleansing its customer master.
|Top drivers for medical device firms to improve customer data.|
Without a universal system, a manufacturer might have the same customer identified in multiple ways within its various systems that contain customer data, preventing it from determining exactly what that customer has purchased in the past and limiting the ability to predict future demand. If St. John’s Hospital is identified as 17 different records within the customer master, it can be difficult for a manufacturer determine whether there are truly 17 different locations purchasing its products or whether all of these records are tied to the same location.
By cleansing its customer master and cross-referencing proprietary account numbers with GLNs, a manufacturer can consolidate duplicate records and determine exactly which customers are purchasing its products, at what volume, at what price, and at what frequency. It can then use this information to formulate educated sales strategies to existing customers, develop targeted marketing campaigns to prospects that meet the existing customer profile, and better meet future demand.
By understanding its customer base, a manufacturer can better negotiate local and GPO contracts. If it has a better understanding of what its contracted customers bought in the past, a manufacturer can better determine pricing and other factors to make its business more profitable in the future.
Aberdeen research has found that the top pressure driving improvement in customer data is the need to increase revenue from existing customers (see Figure 2).
With standard identifiers, manufacturers can also better understand how their distributor partners are performing and help their distributors improve their sales efforts. With clean customer data from manufacturers, free from duplicates, a manufacturer can determine exactly which customers a distributor is selling to and what products they are purchasing. Manufacturers can work with their distributor partners to target those customers more likely to purchase their products and better serve top customers.
Standard identifiers can also help manufacturers identify problems within their distribution channels. If a manufacturer has a clear view into a customer’s sales history and determines that the customer has suddenly stopped purchasing a product or that sales volume is down, it can red flag that customer with the distributor and work with both to quickly resolve the issue.
By identifying its best customers, manufacturers can also determine which facilities are more likely to purchase their products. A manufacturer can access market intelligence sources that link to the U.S. GLN Registry for Healthcare to obtain demographics data for its existing customers and then match these demographics to other facilities in the marketplace to uncover potential opportunities. For example, if a manufacturer’s top customer is St. John’s Hospital and it knows that St. John’s is a research hospital that belongs to a specific GPO and purchases specific products, it can then access a market intelligence database to find facilities that meet similar criteria.
By incorporating standard identifiers with internal channel intelligence data and third-party market intelligence tools, manufacturers have a much better opportunity to uncover new markets and better refine sales and marketing efforts. For example, linking clinical demand information to the cleansed and standardized customer data can have a significant influence on revenue generation. Manufacturers are then able to determine which procedures are being performed at each customer facility and can identify which products have the best chance of being purchased by that provider. This not only helps to increase sales, but also limits the amount of effort required by marketing and sales resources to uncover and close new opportunities.
For example, if a manufacturer that sells orthopedic implants is seeking new markets for its products, it can determine what area has a high percentage of facilities performing orthopedic implant procedures. The data helps identify these facilities. Moreover, such data offer detailed information, including which of the company's competitors is selling into these organizations. If the manufacturer is trying to determine whether it should launch its new knee implant in City A or City B, it can use these sources and data to find the highest concentration of facilities performing knee implant surgeries. It should also determine which competitors’ products the facilities are purchasing, which GPOs the facilities belong to, and other demographic and clinical data on which to base a go-to-market strategy.
The healthcare industry is showing increasing interest in global location standards adoption. Such adoption has the potential to streamline supply-chain processes, reduce costs, and improve patient care. Although providers must take the first step toward standards implementation, manufacturers must prepare internal systems and data to meet customer requests for standards use in business transactions.
Manufacturers that have taken this critical step are aware of the challenges of standards implementation, but many are also recognizing that it presents an opportunity for them to cleanse their customer master data and begin operating as data-driven, customer-focused companies. Through the implementation of the GLN and mapping of this standard to all external data, manufacturers will have the data necessary to grow revenue, reduce operating expenses, and develop joint value with their customers.
Ed McCauley is vice president of business intelligence and sourcing for GHX (Louisville, CO).