The price is right? HHS expects AI will save $2 billion in smarter bulk purchases

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In 2011, IBM’s artificial intelligence assistant Watson crushed defending “Jeopardy” champions Ken Jennings and Brad Rutter at their own game — night after night, for three nights.

But how might Watson fare on “The Price is Right?”

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That’s just the sort of challenge the Department of Health and Human Services has lined up, to make sure it’s paying the lowest price possible for bulk purchases of everyday items like copy paper and medical examination gloves.

“If you think about NIH, CDC, FDA, Indian Health Services, Federal Occupational Health, they all buy a lot of the exact same items every day.” Lori Ruderman, the co-lead of HHS’s Buy Smarter initiative, said Wednesday at an American Council for Technology & Industry Advisory Council (ACT-IAC) Conference in Washington.

Ruderman said HHS could soon save about $2 billion a year through the department’s procurement shop, which spends about $24 billion annually, thanks to its adoption of emerging technology that breaks down some of the department’s silos.

“Across the department, we have these organizations that have been operating as islands, and we’re looking at ways to build bridges across these islands to optimize, reduce redundancies, especially in the way we buy and get some economies of scale,” she said.

The Buy Smarter team is actually leveraging AI work done by HHS’s Program Support Center. While the AI model identified $2 billion a year in potential savings once fully implemented, Ruderman said HHS has risk-adjusted that number down to $720 million.

Before arriving at these savings estimates, the Buy Smarter team took 18 months of acquisition data from across HHS — more than 97,000 contracts — and fed it into IBM’s Watson.

In the end, the team found that different agencies within HHS were paying significantly different prices for the same item — like nitrile exam gloves, which the department buys millions of every year.

“What we found was the lowest price we paid for an exam glove was four cents per glove. The highest price paid for a basic exam glove was 49 cents,” Ruderman said.

If HHS had purchased all of its exam gloves at the 4-cent price, the agency would’ve saved more than $459,000 — barely a dent in HHS’ overall budget, but the Buy Smarter team kept finding “case after case” of pricing discrepancies.

For example, Ruderman said the team found agencies were ordering boxes of printing paper for as little as $27, or as much as $59 per box.

Even there, the agency’s annual procurement spend of $24 billion may just be the tip of the iceberg.

“The use cases are popping up all over the department and we see tremendous change within the way we operate and the way we do business,” Ruderman said.

Ruderman said her office also expects to take a big step in the agency’s adoption of the distributed ledger technology blockchain within the next month.

“We’ve already established a data layer. We’re in the end stages of our authorization to operate, so by Thanksgiving, we will have what we believe to be one of the first, if not the first blockchain in an operational mode within the federal government,” she said.

The Buy Smarter team looks to use blockchain to rethink the way it to replaces legacy IT systems.

“We’re going to start building  off the blockchain using artificial intelligence, microservices, robotics process automation, and instead of updating legacy systems, we’re going to gradually replace the functionality — the pain points we have with those systems — in the hopes that in the future, we may not need some of these legacy systems at all, and we can operate in an agile environment — make changes in weeks instead of years, costing $20,000 instead of $2 million, and we’re already seeing that play out within HHS,” Ruderman said.

The Buy Smarter, in this case, has built off the work of Jose Arrieta, HHS’s associate deputy assistant secretary for acquisition, and the HHS Accelerate team. 

The Buy Smarter initiative was created last spring, when HHS brought together more than 200 of its senior executives to develop “Reimagine HHS,” a platform of 10 initiatives aimed at modernizing the agency, reducing redundancies and achieving economies of scale.

“Under Reimagine, we have a license to be creative in ways Health and Human Services has never had before,” Ruderman said.

Whether it’s the National Institute of Standards and Technology working on a new framework or U.S. Citizenship and Immigration Services using its virtual assistant Emma to field questions on its website, agencies are coming around to the idea that AI is here to stay.

But in order to get more of this emerging technology off the ground. Federal Chief Information Officer Suzette Kent added that more agencies first need to look at their data as “a foundational element” decisionmaking.

“AI is like having the fastest airplane in the world, when we harness that great technology, but if we haven’t made the right foundational investments in the data, we have no fuel. If we have no fuel for that great airplane, it’s going to stay parked on the front lawn,” Kent said.

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