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How Much Money is Your OR Supply Program Throwing Away?

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Today more than ever, technology is streamlining information and revenue flow in healthcare:

  • Front-end staff verify insurance coverage and benefits electronically during registration
  • Clinician orders, documentation, and charges can be queued-up and ready based on available information and best practices
  • Computer assisted coding reduces the time and effort needed to get bills out the door
  • Technical interfaces connect disparate systems and ensure that data transfers seamlessly from one to another, resulting in near-real time interoperability

However, there is one area that still lags, in both process and technological integration, costing the average hospital millions each year in lost revenue.  Surgical tools and procedures are better than ever before, but unfortunately supply purchasing & inventory management processes remain disjointed and inefficient.  

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When looking to reduce operational spending, or entering a period of intentional cost containment, hospitals should first be looking here. Not only is the OR suite and affiliated services already a hospital’s largest area of expenditure, but it continues to grow.  The Association for Healthcare Resource & Materials Management predicts that supply costs will exceed labor as hospitals’ greatest expense by 2020

What then can be done?  Fortunately, there are steps you can take that will dramatically reduce or contain costs, while also improving long-term financial stability. Let’s turn our attention to a few of the best practices:

  • Standardize product purchasing.  Most hospitals can save between $500K and $1M per year just by simplifying the supply chain and purchasing practices. Reducing the number of items in use and the number of vendors results in less variation, less risk, and improved forecasting. By simultaneously leveraging rebate programs, group purchasing, and reviewing manufacturer and distributor contracts, you can easily achieve meaningful cost reduction. 
  • Enlist the help of your surgeons. Physician preferred items constitute between 40% and 60% of a hospital’s total supply costs, any many high-cost items have no impact on the surgical outcome. When presented with the cost and performance data, your providers can help to make cost-effective decisions.  Institute a request-and-approve process to keep individual items under control.
  • Perform regular invoice and pricing audits. By doing so not only will you ensure that your inventory is accurate and up to date, but also that your spending is in alignment with contracts, and that you are capturing and charging for all pertinent materials. With the complicated and ever-changing supply landscape, it is common to find revenue leakage here along with opportunities for additional reimbursement.
  • Perform regular maintenance and review of items. With new supplies coming in, old ones no longer being used, staff having individual preferences, and other variables like purchase pack size and billing units, routine maintenance is crucial.  It means ensuring prices are updated when they change, and that the appropriate EMR integration is in place.  Your Epic EAP, SUP, and ORP files need to be clean, along with surgeon preference cards.  When accurate data in place, you’ll be able to identify meaningful cost variation, waste, and budget appropriately. 
  • Finally, connect and unify your item masters across inventory & supply, ERP, and EMR systems. Only by integrating the information and enabling direct comparison of cost, usage, and charge data, will you accurately identify your unique supply-related revenue improvement opportunities.

We hope this list gets you on your way, but in case you need some extra motivation, Navigant recently published findings indicating that the average hospital can save 11 million per year by improving supply chain operations. With that much at stake, you can’t afford NOT to get supply management done right!

The Wilshire Group has robust experience in the OR space and in helping clients to improve their supply operations. If you are struggling with cost containment or are interested in enlisting our help in achieving top-tier revenue performance and results, contact our Clinical Services team today.  Our experts can assist from strategy to execution, and will help you achieve immediate financial improvement, simplified operations, and sustained cost-effectiveness long into the future so you can walk confidently ahead.

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