Supply Management Tips and Tricks

costInventory systems and supply chain management are extremely important aspects in a healthcare business. Poor management of inventory can easily lead to overspending or the unnecessary overstocking of supplies that could very well expire before they are able to be used.  The Ambulatory M&A Advisor takes a look at some tips and tricks for properly utilizing and inventory system and ways to purchase supplies without over purchasing or breaking the business budget.

Sean McNeeley, MD, Medical Director for University Hospitals Urgent Care Network, board member for UCAOA says that when working with supplies and supply chain management, the first thing to focus on is keeping it all simple.

“Only keep on hand what you really need, and only have as few brands, numbers and names as necessary.  I think we spent five years at my organization getting ourselves to a list where every site has the same thing and no site has anything different,” McNeeley says.

Secondly, he says that value is more important than price; so when a business is choosing items management wants to make sure that it is getting the best value, not the best price.

“For example, if you are looking at a splint that you are going to hand a patient, charge them for it, but it’s a piece of junk because it is cheaper, you are going to get a reputation and may not benefit the patient.  However, if you find one that is a lot nicer, you are going to help your reputation, your patient, and yourself,” McNeeley says.

“You want to make sure that when you are giving out things that may be durable medical equipment that you can bill for, that you are getting it for a price that is less than what you are getting paid for.  That way there is some profit there.”

Pamela Sullivan, MD, MBA, FACP, PT, Facility Medical Director of Team Health agrees with McNeeley’s opinion that cheaper is not always better.

“Many providers need to use multiple of a supply to get the effect you desire thus making it a more expensive choice,” Sullivan says.

When discussing actual medicinal supplies and medication, Sullivan says centers do not need more than one medication per drug class as most urgent care businesses are just giving first doses.  One example she uses in narcotic family.  Sullivan says that a UCB may want to stock Norco and Dilaudid as Norco contains acetaminophen and Dilaudid does not; but base on funds and budgetary reasons, an urgent care would not stock both IV morphine and IV Dilaudid.

Sullivan adds that providers need to look at shelf life and usage rates.

“A medication like lovenox used for DVT patients is expensive and not often used.  A prescription can be written and a visitor of the patient(not the patient) can pick up at community pharmacy, return to your site and administered at facility.  Some medications are a must and will expire but that is the price of doing business while providing safe patient care,” Sullivan says, adding that checking the expiration dates on medication is something that should be done at least once a month.

Kyle Williams, BS, Director of Development for ASD Management discusses how ASCs can improve their supply chain management through the use of inventory management tools.

“ASCs can lose big money if their inventory isn’t managed properly. Purchasing an electronic inventory management system may be worth the investment to eliminate human error and control materials purchasing. We subcontract with electronic software that allows materials managers to input information and generate case costing reports,” Williams says.

Williams adds that another way to tighten the grip on supply management is through the reviewing and standardization of GPO contracts.  According to Williams, the more products and services aligned with a group purchasing organization contract, the better rates ASCs achieve.

“Individual centers can review GPO contracts and make sure all products and services are included, especially if they recently added procedures or specialties. Administrators can also compare the contract to rates received and make sure they match,” Williams says.

McNeeley echoes that the process is really about comparing and making sure that the business involved in purchasing the supplies is getting a good price in a contract.  One way to ensure this is to form alliances with similar organizations that might allow a business to reduce costs by banding together.

“The bigger your institution, the better prices you get,” McNeeley says.

Another tip that Williams gives is using lower cost controlled substances.  According to Williams the centers he works with use a McKesson electronic program to order controlled substances.

“The online platform allows materials managers to input which products they want to order and makes the purchase. This helps reduce the chance for error when compared to manual orders,” Williams says.

Willaims goes on to state that businesses should participate in a freight management program.

“While shipping for individual deliveries isn’t very expensive, our ASCs send and receive packages on a daily basis and those costs add up. Participation in freight management can easily save a center tens of thousands of dollars a year,” he says.

Supply Placement and Disposable Products

Sullivan says when dealing with disposable and reusable equipment, the organization needs to price out the cost of autoclave for equipment that must be sterilized plus overhead to sterilize versus disposable.

“Reusable equipment is often accidentally disposed adding replacement costs.  Managers need to mark with special tape, or hold a program for staff education to prevent accidental loss.  Disposable can often be sterilized once,” Sullivan says.

Williams says there are companies that will reprocess disposables, such as shaver blades.

“They will reprocess and sterilize them so centers can reuse them instead of throwing them out after one use. Most of our centers use major distributors. Medline has a reprocessing program and big companies such as Stryker have them as well,” Williams says.

McNeeley says that another issue with supply management is the placement of supplies themselves.

“You have to take care as to how you place your supplies.  One of our facilities was losing hundreds of dollars in band-aids and things to a point where actually one time someone took  an entire container of supplies in their bag and left.  I have other centers where that has never happened, so make sure that you are not putting too much in a room that could walk away,” he says.

On over purchasing, McNeeley says that managers have to be careful with things that expire, because this can have a direct impact with how management deals with a business’ budget.

“If you allow certain individuals in your organization to purchase as needed, you have to be careful that you don’t have so much stock that you don’t have the space for it, it either expires or becomes less useful, and that you may be harming your budget such that it makes it difficult to keep one’s cash flow correct,” McNeeley says.

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.

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