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Tuning in to RFID

March 1, 2006
by Greg Goth
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Despite the potential for large cost savings, many are in the dark when it comes to this growing technology.

Radio frequency identification (RFID) technology has been one of the hottest topics of the past year across a wide range of industries. RFID champions say the technology is disruptive — capable of compelling revolutionary savings in manufacturing and logistics. Those with a more cautionary outlook cite privacy concerns and a largely pre-standards industry landscape in which hype has often trumped results.

The prospects of RFID within healthcare have mirrored those of the larger picture of the technology. In fact, several of the industry's most knowledgeable users and providers say that, by and large, executives responsible for making the decision on how or whether to deploy RFID are not even cognizant of the most basic characteristics of the technology's main branches — active and passive RFID tags. That's the bad news.

The good news is that an ever-increasing amount of information gathered by early adopters is providing compelling evidence that RFID technology — if preceded by careful due diligence and a clear understanding of the underlying problems a deployment is meant to solve — can deliver on those promises of profound disruption.

George Morley, director of biomedical engineering at PinnacleHealth, Harrisburg, Pa., says the savings he estimated from deploying an active RFID tracking system designed by Radianse, Lawrence, Mass., were so large PinnacleHealth's finance department said, "George, you're making this up!"

"I probably came out with a return on investment for the installation of the system in Harrisburg Hospital in less than a year," Morley says. Even Morley's most conservative estimates showed an ROI in two years, but he says, "I think we can achieve much better than that."

Mike Dempsey, founder and chief technology officer of Radianse, says there are enough active RFID deployments in the field for vendors and organizations to calculate accurate ROI projections; the steps involve getting access to the raw data in a given area, detailed input on what processes the technology is intended to address, and lastly, assigning an economic value to the problem.

"For example, if you have patient flow issues, and want to get more patients through your system, then you can assign an economic value to that in terms of average revenue per patient, average length of stay, or some other industry-accepted metric," he says. "Then it becomes straightforward, it's just a math problem."

Dempsey claims the typical ROI analysis on a Radianse deployment comes to the breakeven point somewhere between 11 and 18 months.

Defining & refining the supply chain

Before an organization can address the possibilities of how RFID technology might deliver supply chain improvement, Dempsey says the term must be defined in ways that other industries such as manufacturing and retailing don't need to consider. For instance, even though considering patients as part of the supply chain is a sensitive issue, the ultimate goal of any admission is the discharge of a healthier patient, and proponents say RFID can improve that process.

"It shouldn't be a technology-driven decision, it should be a business problem-driven decision," Dempsey says. "Tracking Band-Aids points one way, tracking people and staff points to another, and they need to understand the implications — that is, the systems that track people and staff can also track equipment. The systems that track Band-Aids can't. Is that important?"

Dempsey's example is far from theoretical. The active RFID technology useful in keeping track of expensive assets such as portable medical equipment and monitoring the location of patients in day surgery, for example, is far more expensive on a per-tag basis than the passive RFID technology suitable for tracking pallets and cases of cheaper goods such as bandages and linens.

However, when calculating the hourly cost of an operating room, or value of equipment such as ultrasound probes or wheelchairs, that higher cost pales in comparison with replacing equipment.


An active RFID tag contains its own battery and has much greater range than a passive tag, which is wholly dependent on a reader for a successful transmission.

Conversely, other technologies like barcoding might provide a more economical alternative to tracking low-cost bulk goods than a passive RFID deployment, even with a low per-tag cost. In fact, an August 2005 survey of more than 100 healthcare organizations conducted by Menlo Park, Calif.-based Spyglass Consulting revealed less than 23 percent planned to install a passive RFID deployment. However, 45 percent of the survey respondents said they planned to deploy RFID somewhere in their organization.

Other analysts' calculations agree with the projected increase in deployments reported by Spyglass. Priyanka Gouthaman, research analyst with Frost & Sullivan, Palo Alto, Calif., says despite the immaturity of the RFID market, she expects spending on RFID in pharmaceuticals and healthcare to increase six-fold, from $370 million in 2004 to an estimated $2.3 billion in 2011.

"If you look at the rate of adoption, you would assume equipment tracking would come first," Gouthaman says, "given the cost of the technology and the possibility for a fairly quick ROI. Another factor that might lead to a slower growth rate for patient tracking is there are quite a few privacy concerns about RFID in general, and those concerns might expand into the healthcare sector."

Can I get some privacy?