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Part 2: RFID in Healthcare
Micro-Modular Approach: The Cost Justification
There is always a reason behind any investment capital—the returns expected. Tables 1A and 1B below show the cost incurred on each device due to inefficiency in various areas of an operating room. Table 1A shows industry figures based on authors’ field study and research, which indicates a “true cost” of a $90 device to be $126.45 ($90 + $36.54).
The authors in this paper are considering conservative numbers to justify the postulate. As shown in Table 1B, the $90 device becomes $109.35 ($90 + $19.35 = $109.35) in “true value” after adding various overheads incurred due to inefficiency and lack of processes.
Assumptions Justifying the Deployment of RFID
The authors’ research has shown that on an average, one hospital carries 300 percent of the daily needed medical supplies. Hospitals, on average have 37,000 medical supplies in stock on any given day in a 200-bed hospital. Each bed in a hospital has an average of 68 devices associated with it. Out of these 68 devices, 58 are reusable and 10 are permanent medical devices. The authors assume a good 800 antennas to track the items in a 200-bed hospital.
The inventory for medical Instruments turns once a year, and the total number of devices will be 72,000 each year. If we take an average cost of $90 per device, the total investment on the devices, including the costs incurred due to inefficiencies, will be:
Equation 1: ($90 x 72,000 items) + ($19.35 x 72,000) = $6,480,000 + $1,393,200 = $7,873,200
Table 2 below shows the cost incurred for implementing RFID in a 200-bed hospital that has an initial inventory of 37,000 items and a recurring inventory of 35,000 items every year. (Note: The authors used a conservative approach on these calculations and field and industry research found that these figures are well within the parameters of acceptability.)
As show in the table 2, the total cost of implementing RFID in a 200-bed hospital including the device cost will be:
Equation 2: ($90 x 72,000 items) + $1,366,500 = $7,846,500
The net benefit after investing RFID in the given scenario is (2)-(1) = $7,873,200 - $7,846,500 = $26,700.
The authors prove that RFID can reduce the overheads on devices by 37 cents for a $90 device from the moment it is implemented. It should also be noted that the resulting break-even price could have been much lower if we did not use the most conservative data. The primary reason to use the conservative data was to prove the potential of implementing RFID and to acknowledge that not every inefficiency in an organization can be overcome by using RFID. If we used the higher percentages given by the healthcare industry (used in Table 1A) .The RFID implementation would achieve break-even for tagging medical devices costing $47 or more.
There is always a reason behind any investment capital—the returns expected. Tables 1A and 1B below show the cost incurred on each device due to inefficiency in various areas of an operating room. Table 1A shows industry figures based on authors’ field study and research, which indicates a “true cost” of a $90 device to be $126.45 ($90 + $36.54).
The authors in this paper are considering conservative numbers to justify the postulate. As shown in Table 1B, the $90 device becomes $109.35 ($90 + $19.35 = $109.35) in “true value” after adding various overheads incurred due to inefficiency and lack of processes.
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Assumptions Justifying the Deployment of RFID
The authors’ research has shown that on an average, one hospital carries 300 percent of the daily needed medical supplies. Hospitals, on average have 37,000 medical supplies in stock on any given day in a 200-bed hospital. Each bed in a hospital has an average of 68 devices associated with it. Out of these 68 devices, 58 are reusable and 10 are permanent medical devices. The authors assume a good 800 antennas to track the items in a 200-bed hospital.
The inventory for medical Instruments turns once a year, and the total number of devices will be 72,000 each year. If we take an average cost of $90 per device, the total investment on the devices, including the costs incurred due to inefficiencies, will be:
Equation 1: ($90 x 72,000 items) + ($19.35 x 72,000) = $6,480,000 + $1,393,200 = $7,873,200
Table 2 below shows the cost incurred for implementing RFID in a 200-bed hospital that has an initial inventory of 37,000 items and a recurring inventory of 35,000 items every year. (Note: The authors used a conservative approach on these calculations and field and industry research found that these figures are well within the parameters of acceptability.)
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As show in the table 2, the total cost of implementing RFID in a 200-bed hospital including the device cost will be:
Equation 2: ($90 x 72,000 items) + $1,366,500 = $7,846,500
The net benefit after investing RFID in the given scenario is (2)-(1) = $7,873,200 - $7,846,500 = $26,700.
The authors prove that RFID can reduce the overheads on devices by 37 cents for a $90 device from the moment it is implemented. It should also be noted that the resulting break-even price could have been much lower if we did not use the most conservative data. The primary reason to use the conservative data was to prove the potential of implementing RFID and to acknowledge that not every inefficiency in an organization can be overcome by using RFID. If we used the higher percentages given by the healthcare industry (used in Table 1A) .The RFID implementation would achieve break-even for tagging medical devices costing $47 or more.
