4 Ways to Cut Supply Chain Costs

Keeping an eye on supply chain costs is important for any hospital, as supply spend on average is the second highest cost to hospitals, behind labor. "It's a huge area of opportunity for hospitals," says Tony Ybarra, senior vice president of supply chain at Community Hospital Corp., a hospital management and consulting company. "Staying on top of supply chain systems and processes…is both a way to save money and reduce costs associated with supply expenses, whether they be direct or indirect."

There are many ways to take on supply chain management, and CHC takes a direct approach. "Our approach is to do basic blocking and tackling of the supply chain function," says Mr. Ybarra. And that approach has been successful — CHC helped Bert Fish Medical Center in Smyrna Beach, Fla., and Community Hospital in McCook, Neb., save more than 20 percent on supply costs, according to Mr. Ybarra.

Here, he shares four ways hospitals can cut down supply costs, especially in the operating room.

1. Follow the money. According to a CHC data analysis, 43 percent of supply chain costs are associated with the operating room, and 9 percent is in the general store room. However, many supply chain departments are focused on the 9 percent of costs in the general store's inventory rather than 43 percent in the OR inventory. "It's about shifting the culture so we become better focused in these areas," Mr. Ybarra says. "Expand the expertise we have in the supply chain area to all departments in the hospital, particularly those that have the highest dollars in inventory and supply costs."

2. Examine cost by specialty. Many organizations look at cost per case in the OR on an inpatient and outpatient basis, according to Mr. Ybarra. However, a more effective way to examine cost per case is by specialty. "For example, if [a facility] is doing a lot of orthopedic cases, those are more intensive from a supply perspective," Mr. Ybarra explains.

Once the cost per case by specialty is determined, Mr. Ybarra recommends examining managed care payor contracts to determine if the cost per case is being covered by those contracts. "It can be eye-opening," he says.

3. Determine inventory by season. Mr. Ybarra says looking at case volume by specialty in the OR monthly and again over a 12-month period can help determine what the inventory level should be by month and season. "That reduces supply cost and the OR inventory," he says.

4. Negotiate for better prices. This involves engaging executives and surgeons to be successful, but organizations can negotiate with manufacturers for better prices on physician preference items like implants and devices using hospital data and group purchasing organization benchmarking data to determine where the pricing is for a manufacturer, and then formulate low, medium and high targets for savings.

"It needs to be a collaborative effort where everyone is at the table with manufacturers," says Mr. Ybarra. Many surgeons have relationships with implant and device sales representatives that they do not want to compromise, but putting solid data in the surgeon's hands can support negotiations.

In order for any of these tips to be successful, Mr. Ybarra stresses the need for the cooperation of hospital executives, supply chain directors and surgeons. "In the past, the OR has been 'off limits' from a supply chain perspective," he says. To effectively cut costs, organizations need to break down that barrier and foster collaboration.

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