In regards to ambulatory surgery centers, the materials management program begets responsibility for procuring products with the expectations of cost control, distribution mediums and inventory management.
The ASC’s supply and drug expense as a percent of the facility’s net revenue should be approximately 25% to 28% for a typical ASC. If this is not what presents, six key focus areas could influence materials management outcomes. As a contributing author in the groundbreaking book, Developing & Managing Ambulatory Surgery Centers, published by ASCA and available on Amazon, listed below are the key areas excerpted from the book highlighted to improve your materials management program
1. Harness the power of a GPO – The group purchasing organization serves to support high volume purchasing power and also has extensive networks of suppliers. The GPO will offer lower contract pricing and will provide access to many more contracts than what the ASC will obtain independently. A robust GPO leverages the spend of the member facility at the highest aggregated level possible to vendors. Account members should establish strong communication channels with the GPO to discuss achievable volume tiers with the expectations of lower pricing. Another differential which separates the GPOs is the number of contracts achieved via the GPO contract team. An effective GPO also has to execute vendor contract loads at a high level of efficiency. Monitoring the vendor contract load monthly is a core competency for a high performing GPO.
2. A necessary resource is the Primary Distributor – The primary distributor working well with the GPO can perpetuate a symbiotic relationship which will in turn generate pricing results for the ASC. Velocity reporting from both organizations hold each accountable in regards to contract loading. The Primary distributor will also proactively investigate cost savings and unveil product conversion opportunities facilitating reduced costs. Strong communication with the primary distributor will provide transparency with the ordering process. Regular conferencing to discuss distribution markers serve to support the program. Examples to measure include price inconsistency, inventory levels, the number of purchase orders generated and backorder situations. The primary distributor will have supporting local representation which will offer the facility general education regarding the products purchased.
3. Embrace the Inventory Management System – ASC inventory consists of many different items that must be tracked through an inventory system. While the individual assigned to purchasing will monitor inventory utilization, others on the staff should be trained on the inventory system. Inventory management software can be obtained at a fair price and these packages include installation and training. The minimal investment for the ASC on an inventory management system will yield maximum benefits.
4. Standardize Supplies – The effort to standardize supplies starts with identifying the majority of physicians using the same products and addressing those outlier physicians with a positive, solution oriented approach. Standardization creates a more streamlined ordering process, minimizes inventory costs and frees up valuable storage space.
5. Managing the cost of Implants and Devices – Implants and devices are some of the most expensive supply purchases ASCs make, and the cost continues to rise. There are several strategies to address cost containment. First, the ASC should form and rely on a specialty committee composed of physicians to discuss implant management strategies. Physician involvement moves toward to a higher chance to standardize implants and devices. Standardization leads to higher volumes with fewer implant and device choices. The higher volumes allow the ASC to better negotiate cost with the vendors. Also including other utilized products and equipment from the same implant/device vendor (sole source bundle negotiation) will help with the price effort. Embrace a consignment program for implants and devices which will drive inventory overhead down. For implants and devices, it is critical that an ASC has consignment agreements with the chosen vendors. Last, ASCs can aggregate buying power by using a management company. A management company should educate ASC’s that do not have the experience or knowledge to capture appropriate pricing. These firms can help propagate buyer power, develop and manage implant/device contracts, leverage provider alignment and maintain compliance.
6. Case Costing as a Best Practice – Continue to stay current with supply costs for various surgical cases. Consult with physicians on request items listed on preference cards. Double-check the accuracy of the information before loading into the inventory management system. These cards are critical to efficiency and case costing will be accurate if the inventory system is up to date. Benchmark your physicians against each other and create a friendly competition, but also measure quality through indicators to ensure balancing cost and quality.
In summary, supplies and drugs are the first or second highest expense at an ASC. It is easy to become complacent with your GPO and primary distributor. Furthermore, it is just as easy to allow for supply “creep” to impact the bottom line through the evolution of “gradual” cost. An effective materials management program is your best defense. Using objective benchmarks and consistent measurements for review only augments the ability to better manage the surgery center.
- Charles Dailey is Senior Vice President of Business Development for ASD Management. Cultivating emerging markets within outpatient procedural based medicine is his purview. Past experience in sales, marketing, strategy and management have enriched his medical and surgical acumen. His fluency with health care business models includes outpatient facilities, hospitals, independent delivery networks and physician group ventures. A graduate of Florida State University, he contributes to ambulatory care through writing and speaking.