Making Waves

30 March 2008 (Last Updated March 30th, 2008 18:30)

Radio-frequency identification technology is set to cut the cost and revolutionise drug inventory management. Abraham Seidmann and Özden Engin Çakici discuss.

Making Waves
Figure 1. Inventory component costs as a function of order size when using RFID.

The adoption of radio-frequency identification (RFID) technology in hospital settings is growing rapidly. Documented implementation of RFID technology in interventional cardiology has already increased reimbursement levels for expensive supplies, reduced inventory and improved patient safety.

This article evaluates the potential costs and benefits of using RFID technology on various contrast media supplies in imaging departments, based on ongoing research aimed at identifying the impact of RFID in five key areas: economics, technology, operation, IT interface and organisational structure.

"Barcode scanning can be a highly erratic process, and it also wastes nurses' precious time."

The newly developed RFID technology has many advantages over barcodes in most medical environments. A common problem with barcodes is the need for a line of sight to the item being scanned. A nurse should scan each drug's barcode so that information about billing, corresponding patient name and so on enters the system. However, this process can be easily forgotten, especially in busy or emergency situations. Inventory record accuracy decreases, and the supplies used are not billed to the
heathcare funder.

In a recent empirical study, 50% of participants failed to scan a barcode on at least one occasion during a typical simulated surgery. Barcode scanning can be a highly erratic process, and it also wastes nurses' precious time.

RFID BENEFITS

RFID does not require a line of sight. An antenna automatically reads drug information and enters it in the system. With RFID, hundreds of items can be rapidly read from multiple tags.

Another advantage of RFID is that, unlike barcodes – which have only static entries, where once data is written, it cannot be changed – RFID tags can store data that can be read, written and read again, which allows an inventory to be updated, by registering information on partially used drug packages for example.

The third advantage of RFID is its data storage capacity. Basic barcodes can store about 100 digits, while RFID can store up to a million. RFID assigns individual codes to each drug package, making them unique. This allows material used to treat patients to be tracked and, if necessary, recalled by suppliers, and facilitates the investigation of sources of undesirable adverse drug events in a clinic.

RFID IN MEDICAL IMAGING

We have looked at the recently introduced VistaTrak™, an innovative system for contrast media management designed to help support radiology departments in the complex tasks associated with the use of contrast media. This RFID-enabled locked medicine cabinet is designed to address patient care and safety, Joint Commission on Accreditation of Healthcare Organizations (JCAHO) requirements, and inventory management and billing accuracy needs.

The system uses an advanced information technology (RFID). It combines the 'tagging' of bottles of contrast agent with smart-cabinet technology and a specially designed interface linked to patients' electronic medical records (EMR) and work list, as well as the charge master. With the EMR interface, the VistaTrak makes sure that a patient's allergies, weight and kidney functions are taken into consideration before the contrast media bottle is dispensed. It captures, stores and manages
product use data easily and reliably, while helping to reduce human error. VistaTrak also provides valuable operational information about technologist dosing behaviour, use trends and automated due-date compliance that is not otherwise available to radiology administrators.

SERIOUS SAVINGS

The following example illustrates some of the tangible savings that can be achieved from RFID implementation in a typical medical imaging drug inventory application. In the following analytical framework, we use representative data from our field research at a large US regional medical centre.

The radiology practice MRI unit services about 44 patients a day, only 60% of whom require contrast media for imaging. The practice uses larger 100cc contrast bottles at an average rate of 19 bottles a week. In addition to weekly patient demand, there is one bottle a week shrinkage from the medical cabinet. On average, the total weekly consumption is 20 bottles.

The medical imaging department orders every week on Friday, and it takes three days for the orders to arrive. The current inventory system works in such a way that the sum of Friday's inventory and the order given add up to a par level of 45 bottles. This quantity ensures that the probability of being out of stock is less than 1%. It results in a safety stock of 13 bottles and an average order size of 20 bottles a week.

The cost of each bottle is $240. Based on a shelf life of up to two years, we estimate that the weekly inventory holding cost at the medical imaging department is about 1% of purchase price. When the department runs out of stock, it incurs a shortage cost of $1,000 per bottle demanded. This cost represents the managerial effort of expediting a shipment, and a potential loss from a missed imaging slot. We also estimate that the total cost of reordering, shipping and replenishment is about $500 per order.

The total expected annual cost of managing the inventory using the current system will be the total of the ordering, inventory holding, shortage and shrinkage costs. The ordering cost is $26,000, the inventory holding cost of the product is $2,870.40, the statistical shortage cost is $1,664.82 and the shrinkage cost is $12,480. Therefore, the total expected cost of managing the inventory before RFID is $43,015.

MANAGING INVENTORY

On implementation of RFID, the inventory level is continuously monitored. Automated replenishment orders are issued when the on-hand inventory levels in the cabinet drop below 21 bottles. As a result, we calculated that the required safety stock is reduced from 13 to 8.6 bottles. The probability of being out of stock is still less than 1%. With RFID there is complete item-by-item tracking as well as alerts, eliminating shrinkage.

By optimising the total expected annual cost of managing the inventory using RFID for continuous review, the total expected annual cost is now just $12,323, down from $43,015. Figure 1 shows the total cost, and the key tradeoffs in the inventory component costs model with RFID as a function of the order size. Interestingly, we see that the optimal order size increases from 20 to 90, while the number of orders per year goes down from 52 to 11. Table 1 shows the component costs for the two systems.

TOP PERFORMANCE

We found that using RFID reduced inventory management system costs by $30,692 a year, a 71.35% reduction. Figure 2 shows the overall cost comparison of the two models, and Figure 3 the savings for each of the four inventory system cost components.

"The RFID maintained the same high service level and saved the medical imaging unit almost 72% of its total inventory system costs."

The biggest saving comes from a decrease in ordering costs of $20,511, which can be attributed to the RFID continuous review capability. The second biggest saving, of $12,480, comes from the elimination of shrinkage cost. The shortage cost also dropped by $1,520. RFID decreases these costs at the expense of slightly increasing the average inventory holding cost by $3,819.

Not only has the RFID model maintained the same high service level, but it also saved the medical imaging unit almost 72% of its total inventory systems costs. This does not even include possible savings that take unexpected changes in demand into account.

With RFID, demand is monitored continuously, so any change in the expected demand or pattern of use can be accommodated, allowing the system to re-optimise itself accordingly.

An inventory management system with RFID technology can collect and report real-time information. Medical imaging processes can flow without interruption, and departments have access to accurate inventory and use information, which allows medical staff to optimise inventory levels, efficiently restock procedure areas, easily manage expiring products and effectively react to product recalls. All of these save medical staff a lot of time, so that they can increase medical imaging machine use and focus more on patient care.

Overall, we found that the application of RFID technology in medical imaging for contrast media tracking addresses the most pressing concerns confronting radiology departments today: improved patient care and safety; increasing requirements by accrediting organisations for the storage, handling and use of contrast media; better inventory management; and more accurate billing and reimbursement.