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UPS Supply Chain SolutionsSM

RFID in Healthcare - A panacea for the regulations and issues affecting the industry?

Report

Subject: Information Technology for Management(BC 6501)

Name: Ms. Supatra J. (ID: 523 9228) Section 11

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Patients at a hospital in England were exposed to the human version of mad cow disease when infected equipment was used. Human error caused patients at the hospital to be exposed to the infected equipment. How can health care organizations avoid catastrophic situations like this?

Proper protocols and the use of radio frequency identification (RFID) technology could prevent such outbreaks by ensuring instruments are properly tracked and classified. This and other RFID applications can provide significant benefits to the healthcare industry to ensure patient safety and improve supply chain efficiency. RFID is now generating significant interest in the marketplace

This and other RFID applications can provide significant benefits to the healthcare industry in terms of ensuring patient safety and improving supply chain efficiency.

because of its robust application capabilities. RFID enables healthcare facilities improve overall safety and operational efficiency because it operates without line-of-sight while providing read/write capabilities for dynamic item tracking.

Why RFID Adoption Has Been Slow For a variety of reasons, adoption of RFID technology by the healthcare industry has been sluggish because payback is less immediately visible than what most companies prefer. Although costs are decreasing, many companies are reluctant to invest in a technology not yet widely adopted.

Maximizing RFID benefits also requires modifying existing business processes, a daunting task that usually entails changes in technology investment strategies. Without clear RFID standards and data ownership policies, investment in RFID has been a difficult proposition.

Compelling Developments However, recent developments have made RFID applications more compelling.

1) RFID costs are expected to decline significantly. RFID tags costs dropped from $1 in 2000 to 20 cents in 2004, and are expected to fall to 5 cents by 2006. In 2004, readers cost about $1,000 but are expected to fall to only $200 by 2006.

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2) Coupling RFID technology with the electronic product code (EPC) will provide the capability to locate and track items throughout the supply chain, allowing significantly more data to be attached to items at the pallet and case level. EPC Global, a subsidiary of the Uniform Code Council (UCC), is leading the development of industry-driven standards for the EPC Network to support the use of RFID in today’s fast-moving, information- rich trading networks. EPC Global and EAN International are writing specifications on the content for 96-bit EPC tags. EAN International is the global not-for-profit organization that creates, develops and manages the EAN-UCC standards jointly with the UCC, one of its member organizations.

3) New regulatory requirements such as the Florida Pedigree Act mandate that important information accompany each drug throughout the supply chain. Using RFID will allow healthcare companies to capture required information such as drug name, dosage, container size, number of containers,lot/control numbers, etc.

RFID technology can improve the tracking of drug usage throughout the clinical-phase testing protocols.

4) Tampered or adulterated products entering the healthcare supply chain is a growing concern. In light of the 9-11 terrorist attacks and the anthrax-tainted mail found in the United States, both consumers and manufacturers are looking for ways to keep drugs safe.

Overall, healthcare companies need the types of solutions that RFID can provide. Numerous RFID applications for both hospitals and pharmaceutical companies can benefit customers and patients.

Healthcare Marketplace Needs and RFID Solutions

Pharmaceutical Applications Drug Counterfeiting Pharmaceutical companies, distributors, and hospitals need technology to deter drug counterfeiting. The World Health Organization estimates that between 5 to 8 percent of global pharmaceuticals are counterfeit. In some countries, the percentage of counterfeit drugs is significantly higher at between 25 to 40 percent. Thus, the pharmaceutical industry reports that it loses $2 billion per year due to counterfeit drugs.

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Counterfeit drugs adversely affect people’s lives by preventing patients from receiving needed medication. Fortunately, RFID/EPC tags can help detect products that are:

• Counterfeit or fake • Tampered with, adulterated or substituted • Unacceptable (i.e., expired, discarded, returned, recalled, etc.)4

Clinical Trials The pharmaceutical drug approval process is rigorous and dependent on meticulous documentation. As new drugs go through the clinical trial phase, accurately tracking patient usage is crucial. RFID technology can improve the tracking of drug usage throughout the clinical-phase testing protocols. Improved tracking and accountability can improve the reliability and speed of the United

RFID technology that improves visibility into returns could enable faster redeployment.

States Food and Drug Administration (FDA) drug approval process.

Inventory Management Manufacturers and distributors need improved visibility throughout the supply chain to gain an accurate account of inventory. Lack of visibility of customer orders results in increased inventory because healthcare practitioners often keep buffer stocks to avoid stock outs. Increased inventory visibility could reduce buffer stocks by substituting knowledge for inventory, thereby reducing total inventory costs.

Hospital and Medical Device Company Applications Medical Device and Asset Tracking RFID has strong application potential with medical device companies. The FDA requires medical device companies to be able to identify each unit by serial number. Medical device companies need better control of implants on consignment with hospitals because returns can occur more than 50 percent of the time. RFID technology that improves visibility into returns could enable faster redeployment since the company would know sooner when an unused product could be returned.

Surgical instruments and other devices must be properly cleaned and packaged between uses. Tags on the instruments and readers on the sterilization chambers and storage cabinets can validate proper cleaning and help locate needed instruments. Since medical devices are often mounted on portable carts, smart tags placed on the devices and readers installed in the doorways can enable personnel to quickly locate a crucial piece of equipment and immediately determine its fitness for use.

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Similarly, catastrophic errors would be completely traceable from manufacture to use, and preventative maintenance on equipment could be more accurately tracked. Patient Tracking Patient identification and location assistance are often needed to ensure patient safety when urgent medical attention is needed. Patient tags with RFID chips will meet this need. Product Tracking Hospitals currently have to track radioactive isotopes throughout the facility from storage to transport and then from administration to disposal. RFID tags and readers can automate these tasks thereby saving time and resources. Active RFID tags with read/write capabilities can be used to detect

Realizing the full benefits of the technology will require companies to make changes in their business processes.

seal integrity for containers and individual packages. The tag can record the time and duration of seal loss, allowing even problems that occur mid-shipment to be detected.

Inventory Management Large amounts of inventory typically can be found in hospital operating rooms. Lack of visibility in the supply chain coupled with the unauthorized purchase of certain items often results in the proliferation of “unofficial” inventory that could be reduced by properly managing the materiel ordering process. RFID technology can provide an accurate account of both official and unofficial inventory levels. Proper diagnosis of the problem will drive the implementation of corrective solutions.

Following the example of leading retailers, hospitals could move to the next generation of supply chain management by having their suppliers manage product ordering and inventory levels. Hospital suppliers would then be responsible for providing product on a timely basis through RFID technology. A dramatic shift in how hospital supplies are ordered could drive down hospital inventory levels assuming the proper processes and metrics are in place.

Barriers to RFID Adoption Key barriers to RFID adoption stem from previously high technology costs. Payback periods have typically been too long. Companies are waiting for RFID technology to drop in price, thus making it a more affordable investment. Lean information technology budgets mean that new technologies need to demonstrate compelling business cases and short paybacks on investments. Companies are skeptical if the costs cannot be offset by the promised benefits.

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Realizing the full benefits of the technology will require companies to make changes in their business processes. For example, tagging medical devices and placing readers in doorways at hospitals will require an initial deployment and a change in protocols for locating assets. While the initial training will require coordination and effort, the decrease in time spent looking for assets and increased asset utilization will improve the overall efficiency of the hospital. An additional barrier to RFID technology investment stems from the view that applicable standards are lacking. EPC Global, however, is working to create the EPC which will provide significantly more data capabilities for the 96-bit EPC tags. The EPC will enable more information to be captured than the current Universal Product Code (UPC) which can only contain 12 bits of information. The EPC will enable more salient and detailed information to be captured for a product down to the item level. The tag can then be programmed to hold information such as an item’s serial number, size, manufacture date, price, and its distribution touch points, thus enabling greater product accountability and safety.

RFID Decision Factors

Pharmaceutical industry leaders such as Pfizer, CVS/pharmacy, Abbott Laboratories, Cardinal Health, Johnson & Johnson, and McKesson are studying the safety and security of the harmaceutical supply chain. They are also interested in knowing how to improve returns management and increasing the efficiency of distribution operations.

The adoption of RFID technology in the pharmaceutical industry depends on the creation of open standards, FDA approval, packaging redesign, and technology validation. Freeing up enough capital for investment in RFID/EPC technology can occur if in-house consolidation across servers, networks and data storage occurs. Many companies are also waiting for RFID technology prices to drop and for case studies that strongly illustrate the benefits of RFID in business operations. As the RFID technology prices decline and applications become more robust, RFID technology will be increasingly adopted.

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Mandates Retail companies are leading RFID adopters. Wal-Mart, for example, has mandated their top 100 suppliers to adopt RFID technology, enabling increased inventory visibility and management. Similarly, Target has required its suppliers to use RFID technology at the pallet and case levels for some of its regional distribution centers by 2005. Target then expects the rest of its suppliers to adopt RFID by 2007.6 The Department of Defense has also mandated that its top 100 suppliers utilize RFID technology.

While mandates for utilizing RFID technology are occurring, the ultimate responsibility for adopting RFID will depend upon a company’s ability to develop a compelling business case and effectively pilot RFID applications.

Companies will have to weigh a host of considerations before deciding to invest in RFID technology.

Companies will have to weigh a host of considerations before deciding to invest in RFID technology. Considerations to balance will include tag readability, tag price points, system integration costs, hardware and setup costs, management, ownership and sharing of data, business process changes, privacy concerns, and standards, i.e., EPC vs. the International Organization of Standards (ISO), a non-governmental network of the national standards institutes of 148 countries.

Companies will be looking for favorable payback periods because competing priorities for financial expenditures warrant careful consideration before investing in new technology applications.

RFID and Bar Coding While the bar code is widely accepted in the marketplace, RFID offers some distinct benefits:

• No “line of sight” requirements • More automated reading • Less labor required • Improved read rates • Larger data capacity • Ability to “write” information on a tag • Effectiveness in harsh environments (e.g., temperature

extremes, dusty and dirty conditions)

Companies will have to consider the cost of either implementing RFID as a way to augment bar coding or to replace it. Bar coding, however, is a mature and proven technology that works well in numerous applications such as inventory management. Adopting RFID requires careful analysis to demonstrate that the incremental advantages significantly outweigh the benefits derived from bar code technology.

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Organizations and Associations Supporting RFID

Although the FDA has not yet mandated RFID adoption, it has recommended tagging of unit-level drugs that are likely to be counterfeited by 2006 and has called for the tagging of all drugs at the pallet, case and unit levels by 2007.7 The Healthcare Distribution Management Association (HDMA), a non-profit organization for distributors of pharmaceutical drugs, also issued a position statement in November 2003 recommending that pharmaceutical manufacturers and wholesalers begin putting RFID tags with EPC on cases in 2005 and deploy the infrastructure needed to take advantage of those tags. The recommendation also included the incorporation of EPC tags at the selling unit level by 2007.

AdvaMed, an advanced medical technology association, supports the use of automatic identification for medical devices on a voluntary basis. AdvaMed also recommends that reprocessed or refurbished items should be treated no differently than other medical devices. AdvaMed believes it is up to manufacturers to apply automatic identification to items where it makes sense economically and technically.

Clearly, organizations and associations support RFID technology as a means for addressing product safety and accountability. However, companies that adopt the new technology will have to carefully update their internal processes and protocols to take advantage of the benefits that can be realized from RFID.

Case Studies North Bronx Healthcare Network’s (NBHN) Jacobi Medical Center (Bronx, NY Problem The old process required staff to manually enter the patient’s medical record number printed on the wristband, after medication administration rounds, into the hospital information system using computers located at nurses’ stations. This process took staff longer to complete and was prone to more errors compared to using RFID.

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Solution

North Bronx Healthcare Network’s (NBHN) Jacobi Medical Center (Bronx, NY), working with systems integrator Siemens Business Services (SBS) and Precision Dynamics Corporation (PDC), implemented an RFID wristband system for patient identification and medication administration, replacing Jacobi’s manual process of identifying patients, in its two acute-care departments. The RFID system improved patient safety and care, increased productivity, and helped cut costs. The system consisted of an integrated RFID application, developed by SBS, which connected Jacobi’s electronic medical records, lab systems, and billing system. Jacobi’s existing computerized physician order entry system allowed for a seamless RFID implementation. Tablet PCs were embedded with RFID software and used as hand-held readers for RFID wristbands provided by PDC. PDC’s Smart Band® RFID wristbands include a 13.56 MHz RFID. “The RFID wristbands were an essential part of the Jacobi RFID implementation,” said Irwin Thall, RFID Manager for Healthcare at PDC. “They allow for peripheral applications to connect with one another and communicate accordingly. Without the wristbands, the system would not be functional—they are the glue that keeps everything together.” Result Increased Productivity & Cost Savings The Tablet PCs scanned the patient’s RFID wristband prior to medication administration. The RFID wristband inlays were encoded with a unique patient ID number, and once scanned, the patient’s medical file was instantly accessible at bedside. Daniel Morreale, Chief Information Officer for NBHN at the time of the Jacobi implementation, stated that “the RFID trial saved one hour per nurse per shift. If the application is rolled out networkwide, it could potentially save $1 million a year, but more importantly this creates two to three hours during every nursing shift for additional patient contact and care.” “With the new system, staff no longer had to return to nurses’ workstations to get patient data, and accurate information was now available without any lag time,” said Jerry Moy, senior client executive at Siemens Business Services. “Also, doctors and nurses used the new RFID system for wireless database access to order lab tests, enter notes on treatment, and update medication administration right from the bedside.” Quality of patient care and safety has improved since hospital staff was able to gain access to patient records quicker for better service. “Clinicians have endorsed the pilot program and want it expanded because it makes the handling of administrative tasks simpler than with the paper-based system,” said Moy. RFID is a read/write technology which allows medical personnel to instantly update patient information. RFID tags can be encrypted to protect the patient’s information and comply with industry regulations, such as HIPAA. Also, unlike barcodes, RFID is non line-of-sight and can be read through bedcovers and clothing, making it less disruptive for patients, especially when they are sleeping.

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Ultimate ROI: Improved Patient Safety The introduction of RFID at Jacobi reduced the bulk of its paper forms while also ensuring that the information used by its medical staff was always updated. The RFID system has the ability to dramatically reduce errors in drug prescription, increase hospital security and help the organization reach its goal of preventing patient identification mix-ups. The RFID pilot was so successful that staff did not want to give back the equipment after the two month trial. “We went in to retrieve the equipment and the staff refused to give it back,” said Moy. “The system’s ROI is evident in cost savings, but more importantly, in improved patient safety.”

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Falabella Tries Motorola RFID on for Size (and Finds a Perfect Fit) Company overview The Falabella Group is a retail giant in Latin America, operating department stores, home improvement stores and supermarkets in Chile, Peru, Argentina and Colombia. The 118-year-old corporation employs more than 59,000 people in 175 locations and aspires to become the region’s largest, most successful retailer by combining quality and world-class management with a commitment to local communities.

As a major retailer with aggressive regional expansion plans, the Falabella Group recognized early on that RFID had the potential to dramatically streamline their business processes.

The challenge: improve business processes to support regional growth Already an established regional retail leader, the Falabella Group is investing heavily in aggressive expansion in South America, opening 32 new stores in 2007 alone. With this growth, Falabella’s executives recognize that continued expansion will place ever heavier demands on the company’s business processes, from the development of brands and products, to systems, logistics, marketing, store designs, technologies and customer service methodologies. So, together with their commitment to expansion, they have made a similar commitment to improving process management and increasing customer satisfaction.

To that end, the potential benefits of adopting RFID caught management’s attention early on. Being quite deliberate and methodical on new technologies that might require business change, Falabella’s team followed the analyst reports and tracked the technology as it matured. In order to outperform their peers over a sustained time, across business cycles and industry disruptions, Falabella believes in carefully balancing today’s needs with investment in tomorrow’s drivers of change.

Meanwhile, today’s needs were becoming more pressing. Increasing labor demands in both busy new stores and established flagships meant that store inventories were being conducted monthly at best, but often no more than quarterly. Inventory discrepancies were averaging 20% across the company. The resulting inadequate stock visibility translated directly into potential lost sales.

When the second generation of RFID (the Gen 2 RFID Standard) demonstrated high reliability, Falabella was ready to begin planning their own pilot RFID deployment program. Their objectives were clearly defined and tightly aligned to their present business needs:

• Perform daily inventory cycle counts. • Maintain over 98% RFID reading accuracy. • Identify and measure the cost and benefits of RFID.

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Customer Profile Company Falabella Location Santiago, Chile Industry Retail Motorola Products Motorola MC9090-G handheld readers Motorola XR440 fixed readers with AN400 antennas Application OATSystems, Foundation Suite Partners Integration and Business Process Consulting IBM Software OATSystems RFID Tags Paxar (Avery Dennison) Benefits • Faster, more accurate and more frequent inventory cycle counts • 98.4% accuracy of RFID reading for inventory counts • Increased stock visibility for reduced stock outs, improved customer service, higher customer satisfaction and improved sales • Reduction in labor involvement and human errors associated with inventory control for lower operation costs

RFID tags were affixed to two popular lines of men’s apparel, including tailored garments, pants, shirts, sweaters and other items perceived to have high value to the store’s customers.

With RFID, a single Falabella associate pushing a mobile reader cart can complete an inventory that previously required as many as 50 employees working over two full nights.

The pilot: one store, one overriding goal - accurate inventory Falabella planned a four-month pilot program in one of its Santiago department stores, close to corporate headquarters. To ensure careful monitoring and control of the test program and to ensure project buy-in across distinct business operations, the retailer had committed to weekly RFID pilot project meetings between the technology integration group and business/store operations.

The first challenge was finding the right solution providers to help launch the pilot. After months of interviewing, Falabella was frustrated to discover that most of the vendors they spoke with had little to no actual experience in RFID deployment. Ultimately, however, they put together a world-class team of RFID experts that had experience in deploying RFID in retail environments. IBM served as RFID business process consultant and as the lead technology integrator for the project. Falabella selected Motorola’s MC9090-G handheld RFID readers for the receiving process and built two battery-powered mobile carts that used RFID readers and antennas for inventory counting. The retailer purchased its RFID tags from Paxar (Avery Dennison), and chose OATSystems for the RFID software.

For the pilot, the retailer limited RFID tagging to two popular lines of men’s apparel, including tailored garments, pants, shirts, sweaters and other higher value items. Some 7,000 items would be tagged and 2,500 on-hand items would be inventoried daily.

RFID was incorporated into several business operation segments during the pilot:

• At Receiving, precoded RFID tags were affixed to each item to be tracked. A Motorola handheld RFID reader with barcode scanner was used to validate each tag and enter the item into inventory.

• For Inventory, a Motorola reader on a mobile cart was guided by a single associate along a predetermined path each morning before the store opened. This provided a daily basis inventory count for both the backroom and the sales floor.

• At Check-out, RFID tags were removed at the point of sale and a Motorola handheld reader changed the item’s inventory status to “sold.”

• For Restocking, daily basis cycle counts and sold item lists were consolidated twice daily to identify understocked items. A Motorola handheld reader was then used to reassign stock location from store rooms to the sales floor.

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“With this pilot, we developed a lot of confidence in RFID, what it can do, and what we can do with it.”

Andr s Arancibia Falabella’s R&D chief

Their pilot program convinced Falabella that RFID can dramatically improve inventory accuracy and on-hand stock visibility while simultaneously reducing the associated labor costs and cycle counting times.

A Motorola RFID reader is attached to a robotic vacuum cleaner. While this technologicall curiosity was not actually used in the pilot, the idea hints at the potential of incorporating RFID in other automated processes.

The results: beyond expectations

Falabella’s pilot RFID system quickly proved to deliver 98.4 percent inventory accuracy, enabling staff to count up to 9,000 items in one hour using the mobile cart. During the trial, the store saw a 25 percent reduction in out-of-stock occurrences among the tagged items.

Inventory had previously been a monthly or even quarterly process, requiring as many as 50 employees working over two full nights while the store was closed. With RFID, a single associate walks the floor pushing an RFID-enabled mobile cart before store opening each day. The captured inventory data is then read into the OATSystems software for inventory reconciliation and report generation. Hundreds of man-hours were reduced to a few hours, with greater accuracy.

The speedy capture of accurate daily data yielded additional process improvements. Routine daily reports gave store managers the data needed to set new key performance indicators (KPIs) on issues such as shrinkage, promotions effectiveness and the dwell-time of merchandise in the backroom, on the sales floor or in-transit between the two.

The benefits Falabella was most interested in making a business case for RFID. In their competitive and cost-sensitive industry, they focus on customer satisfaction and inventory visibility as crucial elements for continued profit and growth.

As a result of this pilot, Falabella identified a number of key benefits of introducing RFID to their business processes:

• Inventory management: RFID improved on- hand inventory availability, visibility and accuracy, while reducing the cost and labor of inventory tracking. More visible inventory is ultimately available to sell and manage.

• Store efficiency: RFID provides significant value in automating front-of-store management at the

item level, significantly reducing the time and cost of visual/manual shelf-level management of stock.

• Customer experience: RFID makes merchandise more visible and available, so customers can more easily help themselves, interacting with merchandise, rather than staff. They are happier with their experience and staffing needs are reduced.

• Loss prevention: RFID improves shrink management by enforcing tighter control of on-hand inventory and the movement of that inventory. Easy location of product can also help add security to store operations, reducing both customer and employee theft.

Next step: rollout Based on the success of its pilot program, Falabella is currently working on a plan for larger-scale RFID implementation. The goal is to move from 2,500 to more than 10,000 products per store, focusing on integration with suppliers and a uniform operation between stores.

Eventually, the company intends to move beyond standalone store systems to integrate the data collected through RFID enabled items into back-end operations and enterprise-wide information systems.

For more information about how Motorola’s RFID solutions can help your company achieve competitive advantage, contact your Motorola representative or visit www.motorola.com/rfid.

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About our partner IBM is executing an end-to-end RFID Solution Strategy from business case to pilots, implementation and rollout. Their comprehensive solution framework is designed to deliver rapid ROI while providing a roadmap for the future. For over a decade they have been a leader in RFID technology innovation.

IBM has provided business case development, as well as pilot implementation services to many pioneering RFID technology adopters in the consumer products and retail industries. Their experience has enabled them to develop an implementation roadmap for transforming the way manufacturers and retailers collaborate. The RFID solution is part of a comprehensive strategy which allows in-store data to be used for multiple business processes including merchandising, pricing, promotion, inventory management and replenishment.

About our partner Thanks to their expertise in advanced research, electronics and roll-to-roll manufacturing, Avery Dennison was the first to develop a high-volume, high-yield process for delivering RFID inlays. This process typically yields throughputs 10 times higher than conventional assembly techniques.

The company’s experience includes developing orientation-insensitive designs - where the device must work regardless of its position in the RF field - to designs that work in the proximity of, or even under, water. Avery Dennison produces antennas from aluminum and copper - even printed silver. In addition, their high-speed proprietary assembly technology combines antennas with silicon RFID chips to make functional devices. Other capabilities include in-line testing and infrastructure support.

About our partner OATSystems, Inc. is a recognized RFID solution leader with software that empowers businesses to achieve competitive advantage and ROI from radio- frequency identification (RFID) enabled applications. As a pioneer in developing RFID technology, OAT has been setting the standards in RFID for over half a decade and is responsible for industry firsts that include the largest scale and largest scope of deployments, as well as the most innovative approaches to providing enterprise-wide RFID solutions. OAT’s multinational client base consists of over 100 customers in retail, CPG, consumer electronics, manufacturing, life sciences, aerospace and defense. OAT is headquartered in Waltham, MA, and has a development office in Bangalore and various direct sales offices and resellers around the globe. To learn more about the company’s latest developments, visit www.oatsystems.com.

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strong RFID applications