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Curing Health Care's Cost Disease

Some say spending on health care can not be reigned in, but the reality is that RFID and related technologies can reduce costs by billions of dollars annually.
By Mark Roberti
Jan 25, 2010Here in the United States, our national government is mud-wrestling over the issue of how to reign in runaway spending on health care. I've followed the debate fairly closely, because health-care costs have a huge impact on my business.

I came across an interesting article the other day in The New York Times that says—based on the theory of William J. Baumol, an economist at New York University—"health-care costs will almost certainly continue to rise faster than general inflation" (see For Ailing Health System, a Diagnosis But No Cure).


That's because of what Baumol and a colleague, William G. Bowen, described as "the cost disease" in a 1966 book on the economics of the performing arts. "Their point was that some sectors of the economy are burdened by an inexorable rise in labor costs because they tend not to benefit from increased efficiency," the article states. "While some industries enjoy sharp increases in productivity (cars can be built faster than ever, retail inventory can be managed better), endeavors like health care are as labor-intensive as ever."

While this is no doubt true, it ignores the fact that there are huge savings to be had in the health-care sector if hospitals and clinics are willing to invest in radio frequency identification and other technologies. This week, we are hosting an RFID in Health Care event in Dallas, Texas. One of the speakers is Kathy Santini, Bon Secours Richmond Health System's VP of surgical services, who will explain how her firm saves $2 million annually by drastically reducing the amount of rental equipment used by the company's four hospitals, as well as decreasing the incidence of lost or stolen equipment.

And that's just from one application—asset tracking. Scott Sullivan, business manager at the University of California's San Diego Medical Center (UCSD), will explain how his hospital is using an RFID-based real-time locating system (RTLS) to better manage perioperative services from both a patient-flow and budget perspective. Improving perioperative services improves a medical center's overall patient flow and bottom line. The RTLS technology enables UCSD to maximize operational efficiency, as well as minimize required resources and related costs.

At past events, we've had speakers discuss how stents that cost $25,000 apiece regularly go missing, and how medical devices costing a few thousand dollars each get thrown away with medical waste, or get lost in sheets that sent to the laundry for cleaning. We've had speakers talk about how patients are not billed for implants they've received, due to a lack of accurate tracking mechanisms. Others have reported losses in the hundreds of thousands of dollars, the result of inventory items passing their expiration dates. RFID can solve these issues and many more.

It is true that RFID won't save much in labor costs for hospitals. If nurses spend one hour a day less searching for things they need, most hospitals will not reduce their nursing staff as a result. But the good news is that the nurses will be able to spend more time with patients, and that should lead to better patient outcomes.

Will RFID solve the health-care crisis in the United States? Of course not. But I'm sure there isn't a hospital in the country—or anywhere in the world, for that matter—where the technology can't reduce costs by hundreds of thousands of dollars every year. And one way that the Obama administration could help reduce health-care costs would be to undertake a large-scale pilot within the hospitals run by the U.S. Department of Veterans Affairs. If RFID were rolled out across the VA hospital system, it could lower expenses for the government, while also encouraging other hospitals to deploy RFID to achieve the same benefits. Unfortunately, it appears no one involved in Washington's mud-wrestling is thinking along these lines.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.
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