Modernizing the Medtech Supply Chain

A study shows that standard identifiers can create efficiencies and improve accuracy in medical device order-to-cash and rebate/chargeback processes.

Image courtesy of GS1

Medical devices move from manufacturer to healthcare practitioner through a complex supply chain that is in serious need of total, end-to-end modernization to improve efficiency, accuracy, patient safety, and cost savings. Data exchange between trading partners is often fraught with discrepancies that can trigger costly delays, transactional errors, inventory problems, and traceability gaps—all to the detriment of the entire system and most importantly to patients—while also thwarting efforts to contain costs. Increasing adoption of global standards for the data that connects products and transactions between parties is essential to collaborative advancement.

When identification standards are not widely used across an industry, trading partners often use non-standard and proprietary identifiers. This practice can result in multiple identifiers for the same product (e.g., buyer’s part number, supplier’s catalog number, vendor’s item number, etc.) or party/location (e.g., DUNS Number, buyer account number, etc.). Although this was historically the approach in U.S. healthcare, regulatory and industry efforts leveraging GS1 Standards provide the opportunity for organizations to streamline and standardize product identification with the GS1 Global Trade Item Number (GTIN) and party/location with the GS1 Global Location Number (GLN).

Implementing standards that facilitate better communication and data sharing between trading partners will vastly improve transactional accuracies throughout the entire supply chain, from purchase order to payment (order-to-cash), all the way to and including rebate and chargeback claims.

Clarity in Order-to-Cash Transactions

GTINs and GLNs provide a single, globally unique, standards-based device and location identifier, respectively, that many trading partners use to identify a product or party/location in all supply chain transactions and communications. Using these common identifiers helps improve efficiency and drive process improvement efforts, including their use in electronic data interchange (EDI) to help enhance transaction accuracy and more fully support traceability from manufacturer to patient/end user. To assist healthcare companies’ adoption of these standards, the GS1 Healthcare US EDI Implementation Workgroup, consisting of device manufacturers, distributors, and providers, developed guidance for the implementation of GTIN and GLN in EDI order-to-cash transactions from purchase order to payment in U.S. healthcare.

The process of implementing industry-accepted standards requires collaboration at each preparation and implementation step. Best practices recommended by the workgroup begin with establishing agreement between parties on the flow of transactions and alignment of hierarchies to be identified for products—from all available units of sale to applicable systems—and for customers, vendors,and accounts including billing inventory and delivery locations. System and trading partner capabilities must then be validated as business transactions and defined to assess readiness to transact. Guidance for each step of the process for establishing the use of GLNs and GTINs in EDI transactions is further provided in the workgroup’s report, “Guidance for Implementing GLNs and GTINs in Order-to-Cash Transactions.

Pricing Accuracy

Healthcare companies are also heavily focused on improving the rebate and chargeback claims process. These efforts are aimed at lowering costs through process efficiency, increasing pricing accuracy and integrity for providers, and reducing the potentially millions of dollars of “at risk” disputed rebate and chargeback claims.

Provider organizations can be quite complex with various business entities, names, facilities, locations, and departments. A pricing contract specifies what the specific discounted price should be for a provider organization or for a certain portion of an integrated provider organization. In administering pricing contracts, a distributor implements the manufacturer’s pricing terms with the distributor’s customers and then submits a claim to the manufacturer to reimburse the difference between the distributor’s normal price and the discounted price charged to the customer per the contract. This reimbursement is referred to as a rebate or chargeback. In order for the claim to be paid, it is essential that the distributor correctly identify the customer so that the manufacturer can match the customer to one of its contracts. This is not as simple as it sounds.

Contract administration involves numerous business processes across many trading partners. Pricing discrepancies in the healthcare supply chain increase operating costs for all trading partners, including providers, group purchasing organizations (GPOs), manufacturers, and distributors. Nonetheless, solving contract pricing issues is extremely challenging, due in large part to the complexity of contract administration in healthcare. Thousands of distinct processes, nonstandard facility definitions, and data formats exist.

Reducing Discrepancies

A joint Health Industry Distributors Association (HIDA)/GS1 US Price Accuracy Initiative (PAI) Workgroup conducted a Proof of Concept in which medical device manufacturers, healthcare distributors, and GPOs evaluated the use of GLNs in rebate and chargeback claim processes. The analysis was performed within the context of claim discrepancies that were due to customer non-alignment, which is a core issue for the majority of discrepant claims. With millions of dollars at issue and significant resources used to reconcile and resolve them, the critical question for the workgroup was whether GLNs as currently implemented across the industry can help reduce those discrepancies.

Five healthcare industry stakeholders, including two medical device manufacturers, two medical/surgical distributors, and one GPO participated in the Proof of Concept. During the analysis, inclusion of customer GLNs eliminated 31% of the discrepancies right off the top. Beyond that, it facilitated reconciliation and resolution of another 35% of the discrepant claims. Combined, inclusion of customer GLNs would have been able to reduce discrepancies in the test sample by 66%.

This test demonstrated that including customer GLNs in rebate and chargeback claims reduces the number of discrepancies caused by customer mismatch and facilitates reconciliation and resolution of those discrepancies. In addition, it produced a simple methodology that manufacturers and distributors can use with minimal effort to examine the same question in the context of their own rebate and chargeback processes.

Detailed recommendations are provided in the Price Accuracy Initiative document, “Proof of Concept: Using GLNs to Reduce Rebate & Chargeback Claim Discrepancies.”

Conclusion

Achieving meaningful transformation for healthcare efficiency and cost savings can’t happen without better communication and data compatibility throughout the supply chain. Using standard identifiers for medical devices, parties and locations, and standardized transactional documentation to support traceability and cost efficiencies will harmonize many of the key business processes required for better communication so that these changes can occur. Implementing GLNs and GTINs for devices will enable significant improvements. It is a collaborative and transformational effort that is mapped out in detail in the two guidance documents recently published by GS1 US, with additional resources available to assist.

Beth Gibson

Beth Gibson

As a senior director of healthcare for GS1 US, Beth Gibson is responsible for leading U.S. healthcare trading partners to actively engage, adopt, and implement GS1 Standards to improve their business and supply chain operations. With a focus on the medical device segment, Gibson is actively collaborating with industry to address the FDA’s Unique Device Identification (UDI) requirements for enhanced patient safety. 

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