Ambulatory surgery centers are seeking new ways to reduce their supply chain costs without affecting day-to-day operations. However, many ASCs overlook one key way to improve their bottom line: reducing the amount spent on direct shipments to their facilities.
In a webinar sponsored by Cardinal Health and hosted by Becker's ASC Review, Kelly Sheen, national operations manager of the company's OptiFreight Logistics program, discussed how effectively evaluating the shipment of medical devices, pharmaceutical products and other supplies represents a significant cost-savings opportunity for ASCs.
OptiFreight Logistics manages freight logistics for more than 18 million shipments across 21,000-plus facilities, including roughly 2,300 ASCs, each year. The free program saved surgery centers an average of $17 per package in 2017, according to a company analysis of shipments through OptiFreight Logistics.
For Ms. Sheen, the cost-savings opportunity comes down to freight management, or more closely evaluating shipment costs from medical product vendors.
"Every day, you have trucks pulling into your surgery center with supplies shipped from one of two sources: either a distributor or directly from the supplier," she explained. "On items coming from your distributor, freight is included, but on direct shipments from your vendors, you are paying the freight costs."
Since vendors often combine shipping and handling fees into one item on an invoice, ASC administrators lack the transparency necessary to evaluate appropriate freight costs. However, with some extra legwork, administrators will be able to identify significant cost savings in these transactions.
How freight costs have become a profit center for vendors
Today, freight fees are a major profit center for many medical product vendors. On average, roughly 40 percent of a surgery center's supplies come through distributors, while 60 percent come through vendors, according to Ms. Sheen. That poses a challenge for ASCs, since freight costs often carry hidden charges related to direct and overnight shipments.
"You end up paying more without adding any value to your center," Ms. Sheen said, noting ASC administrators typically work with vendors to negotiate the cost of the products they're purchasing, but not the cost of the shipping charges. Vendors capitalize on this dynamic, often adding ambiguous combined shipping and handling fees, or unnecessary next-day shipping.
An ASC typically overpays by 30 to 50 percent when it comes to shipping charges, according to Ms. Sheen.
"The practice of overcharging for shipping isn't new," she said. "It's been around in many industries for many years, and we recognize it as a standard business practice in healthcare."
How freight management reduces shipping costs for ASCs
The standard freight process for ASCs that purchase products directly from a vendor involves three steps: the vendor receives a purchase order from the ASC, the carrier picks up the shipment from the vendor, and the carrier delivers the shipment to the ASC, while the vendor delivers a product invoice — with the combined shipping charges — directly to the ASC.
A freight management partner, such as OptiFreight Logistics, adds a step behind the scenes. The vendor still delivers a product invoice to the ASC; however, the invoice does not include shipping charges. The third-party freight management partner audits these charges separately, before presenting the ASC with a weekly discounted invoice.
"The biggest difference is how you receive the invoice for your shipping charges," Ms. Sheen said. "There are no changes to your standard ordering practice from the vendor, and no changes to the [purchase order], the product or the mode of delivery."
As an example, Ms. Sheen shared how Boston Out-Patient Surgical Suites, a Waltham, Mass.-based multispecialty surgery center focused on orthopedics and pain management, decided to partner with a freight management company to cut operating costs. Within 12 months of working with the freight management partner, the surgery center saved 52 percent on its inbound shipping costs, without altering its current operations or patient care protocols.
"Other savings programs may require you to make changes to your clinical care, whether you're changing the product, the order pattern, et cetera," Ms. Sheen said. "Managing your freight … will allow you to tap into the savings in the products you already order."