9 Ways to Control Supply Costs

As reimbursement has decreased, hospitals and outpatient imaging facilities have had to work hard at stabilizing their finances by focusing on decreasing supply costs.  

Looking to the future, the pressure to decrease costs is only going to increase as there will be a shift in payer mix. Today’s overall payer mix is about 55 percent Medicare/Medicaid and 45 percent commercial. By 2020, the payer mix is expected to shift to about 70 percent Medicare/Medicaid and 30 percent commercial, which results in a reimbursement reduction of 10 percent to 15 percent. To respond to this shift in payer mix, by 2020 providers will need to reduce their costs by an estimated 15 percent to 20 percent.¹ Here are nine suggestions to help reduce supply costs.

1. Centralized supply storage. Maintain supplies in one location, if possible, and have them organized in labeled storage bins or portable storage carts. A centralized storage area that allows for easy visualization of current inventory can help reduce overstocking of supplies.

2. Develop and maintain par levels. My rule of thumb is to keep par levels at a one month usage.  By aligning par levels with actual usage, waste is reduced by expiration. In addition, make sure supplies are rotated when new supplies are brought in to reduce waste through expiration.

3. Engage physicians with vendors to standardize supplies and reduce price variability. Volume ordering helps achieve best pricing.

4. Monitor marketing directly to physicians. There has to be a balance with clinical outcomes and cost. When vendors get in a dialogue with physicians without administrative presence the dialogue can be skewed towards clinical outcomes only.

5. Use of consignment. Use of consignment for high priced supplies, such as those used in interventional suites and cardiac catheterization labs, reduce carrying costs since facilities only get charged by the vendor for the supplies as they are used. The appeal of consignment is that responsibility is placed on the vendor for maintaining par levels and monitoring expiration dates.

6. Group purchasing organization (GPO). Take advantage of pricing through your organization’s GPO. In most cases, conventional supply items used on a daily basis such as pharmacy products, spinal needles, ultrasound gel and disposable items are better priced through the facility’s GPO.

7. Utilize you director of materials management.   If you have a materials management department, utilize them as a resource. They have the experience, knowledge and access to the tools and resources that can help you make an informed decision regarding supply costs.

8. Split orders of low use items with other departments. There are supplies that departments need to have on hand, but use in small quantities. See what other departments use the same supplies as you but in lower volume and share the order. 

9. Use level II Healthcare Common Procedure Coding System (HCPCS codes). Although many supply charges are bundled, there are some supplies that are reimbursed by Medicare and insurance companies. When setting up charges for supplies in the charge master always check to see if there is a HCPCS code to be associated with the supply. If you are unable to find a HCPCS code, check with the vendor. Level II HCPCS codes assist with efficient claims processing and reimbursement.

Reference

1. Reilly R. Trends in healthcare and the changing role of radiology. Radiol Manage. 2013;35:12–15.