Supply costs are a huge overhead expense for any ASC, so properly managing those costs is crucial to maintaining the financial health of your facility. Tom Wilson, managing partner of Monterey Peninsula Surgery Centers and board member of the California Ambulatory Surgery Association, explains five steps to better contain supply costs.
1. Reduce supply costs to 20 percent or less of operating expenses. Mr. Wilson says although the average percentage of supply costs could vary from facility to facility, they are usually the second highest expense item after labor-related costs and typically consume 20-33 percent. ASCs should strive toward reducing supply costs to 20 percent or less of the ASC's total expenses.
"For surgery centers to be successful under CMS payments, they need to provide the care for less than what the government is paying, so the first thing ASCs should address is the low-hanging fruit, which is medical supply costs," he says.
2. Establish a plan to reduce medical supply costs over several years. To reduce the amount of money spent on medical supplies, Mr. Wilson suggests ASCs follow a simple guideline to reduce overall medical supply expenses over a three-year period.
"What our centers have done and what centers should do is reduce the cost of medical supplies by 20 percent in year one, 10 percent in year two and another 10 percent in year three," he says. "Of course, centers can only drive medical supplies costs down so far, but this is achievable. For example, our three facilities perform over 25,000 procedures annually and spend approximately $4,000,000 in supply-related expenses. We were able to reduce this expense by $900,000 in 2010."
3. Meet with physicians to receive individual buy-in. An ASC's efforts to reduce medical supply costs are heavily dependent upon physicians' involvement, as physicians control 70-80 percent of the cost of medical care. Mr. Wilson says ASCs must first show physicians and physician-owners that reductions in medical supply costs are necessary to remain financially viable in the future.
"We'll meet with our 13 orthopedic surgeons on staff and break down eight to ten very common orthopedic procedures, such as total and partial joint replacements, shoulder repairs, ACL and other knee repairs, and [assign] each physician a letter A through M," he explains. "Then we will list by letter how much it costs each physician to perform a procedure. One physician might discover his supply costs are higher because he is the sole surgeon utilizing a $300 disposable wand. By doing peer reviews, we can discuss how to deliver quality care at a lower price."
4. Research what is clinically acceptable. Mr. Wilson says instead of opting to use medical supplies of the highest, and therefore most expensive, quality, ASCs should research what other options are clinically acceptable and are offered at a much lower cost, providing a greater value. Since the federal government continues to reimburse ASC minimally for a broad range of procedures, ASCs must be more proactive and strategic about the devices they choose to use.
"If CMS pays an ASC $1,100 for an orthopedic procedure requiring an implant and the device of choice is a plate and screw set costing a $1,000, the center will lose money," Mr. Wilson says. "This problem could be solved if the procedure could be performed with wire implants costing a $100. If the wires are clinically acceptable, medicine will move in this direction. This is a tough choice that surgeons and ASCs will need to rapidly address in the future."
5. Standardize and reduce medical supplies. Standardizing medical supplies, such as implants and expensive single use items, results in huge savings for ASCs because of the economies of scale that is achieved when negotiating prices with vendors. Providing larger volumes over fewer suppliers yields greater price points for these extremely expensive items. Mr. Wilson says an added benefit in standardizing medical supplies is time savings for materials managers, which indirectly translates into staffing costs.
"If an ASC has 13 different types of anchors, that's a huge cost because that ASC's [materials management] employees are spending more time and money in maintaining par levels, establishing re-order points and monitoring inventory," he says.
Mr. Wilson says ASCs should also strive to eliminate medical supplies that are rarely used from its inventory. In a recent orthopedic section meeting, his ASCs eliminated 15 unnecessary inventory items, including several different types of anchors and cannulas. "Of course, there are certain supplies that, even if only used a handful of times a year, are absolutely needed [regardless of frequency of use]. However, eliminating items that are not used very often or any duplicative items have saved our centers time, effort and money," he says.
Learn more about Monterey Peninsula Surgery Centers.
1. Reduce supply costs to 20 percent or less of operating expenses. Mr. Wilson says although the average percentage of supply costs could vary from facility to facility, they are usually the second highest expense item after labor-related costs and typically consume 20-33 percent. ASCs should strive toward reducing supply costs to 20 percent or less of the ASC's total expenses.
"For surgery centers to be successful under CMS payments, they need to provide the care for less than what the government is paying, so the first thing ASCs should address is the low-hanging fruit, which is medical supply costs," he says.
2. Establish a plan to reduce medical supply costs over several years. To reduce the amount of money spent on medical supplies, Mr. Wilson suggests ASCs follow a simple guideline to reduce overall medical supply expenses over a three-year period.
"What our centers have done and what centers should do is reduce the cost of medical supplies by 20 percent in year one, 10 percent in year two and another 10 percent in year three," he says. "Of course, centers can only drive medical supplies costs down so far, but this is achievable. For example, our three facilities perform over 25,000 procedures annually and spend approximately $4,000,000 in supply-related expenses. We were able to reduce this expense by $900,000 in 2010."
3. Meet with physicians to receive individual buy-in. An ASC's efforts to reduce medical supply costs are heavily dependent upon physicians' involvement, as physicians control 70-80 percent of the cost of medical care. Mr. Wilson says ASCs must first show physicians and physician-owners that reductions in medical supply costs are necessary to remain financially viable in the future.
"We'll meet with our 13 orthopedic surgeons on staff and break down eight to ten very common orthopedic procedures, such as total and partial joint replacements, shoulder repairs, ACL and other knee repairs, and [assign] each physician a letter A through M," he explains. "Then we will list by letter how much it costs each physician to perform a procedure. One physician might discover his supply costs are higher because he is the sole surgeon utilizing a $300 disposable wand. By doing peer reviews, we can discuss how to deliver quality care at a lower price."
4. Research what is clinically acceptable. Mr. Wilson says instead of opting to use medical supplies of the highest, and therefore most expensive, quality, ASCs should research what other options are clinically acceptable and are offered at a much lower cost, providing a greater value. Since the federal government continues to reimburse ASC minimally for a broad range of procedures, ASCs must be more proactive and strategic about the devices they choose to use.
"If CMS pays an ASC $1,100 for an orthopedic procedure requiring an implant and the device of choice is a plate and screw set costing a $1,000, the center will lose money," Mr. Wilson says. "This problem could be solved if the procedure could be performed with wire implants costing a $100. If the wires are clinically acceptable, medicine will move in this direction. This is a tough choice that surgeons and ASCs will need to rapidly address in the future."
5. Standardize and reduce medical supplies. Standardizing medical supplies, such as implants and expensive single use items, results in huge savings for ASCs because of the economies of scale that is achieved when negotiating prices with vendors. Providing larger volumes over fewer suppliers yields greater price points for these extremely expensive items. Mr. Wilson says an added benefit in standardizing medical supplies is time savings for materials managers, which indirectly translates into staffing costs.
"If an ASC has 13 different types of anchors, that's a huge cost because that ASC's [materials management] employees are spending more time and money in maintaining par levels, establishing re-order points and monitoring inventory," he says.
Mr. Wilson says ASCs should also strive to eliminate medical supplies that are rarely used from its inventory. In a recent orthopedic section meeting, his ASCs eliminated 15 unnecessary inventory items, including several different types of anchors and cannulas. "Of course, there are certain supplies that, even if only used a handful of times a year, are absolutely needed [regardless of frequency of use]. However, eliminating items that are not used very often or any duplicative items have saved our centers time, effort and money," he says.
Learn more about Monterey Peninsula Surgery Centers.