How We Cut Supply Costs - and Kept Them Down

Getting a handle on supply costs can be a daunting task - not only do you have to educate yourself on how to use supplies efficiently and buy intelligently, you have to convince your staff and surgeons to practice cost-cutting habits on a daily basis. I faced this challenge back in 1987, when we opened a single-specialty ophthalmology ASC. At times it was an uphill battle, but with the help of my professional and caring staff, I was able to make using supplies efficiently a normal part of how we run our facility. Perhaps some of the techniques I learned will help you as well.

Out of control costs
When we opened our ASC, all our staff and surgeons came from a hospital background. They had a minimal knowledge of costs and paid little attention to utilization and waste, even though we were operating on a budget limited by reimbursement. They went through disposables at an alarming rate, often using partial packs and then simply discarding the rest. In some cases, disposables just seemed to disappear into thin air.

To begin to get a handle on all this, I started taking a close look at:

- What was left on the tray when the surgery was finished;
- What was opened and not used;
- Why either of the above was happening

When I looked into the "why" part of the equation, the staff would tell me, "that's what the doctor wanted." It became apparent that staff and surgeons viewed the cost and use of supplies as a problem for purchasing and administration. They knew what they wanted or preferred to use and simply reached for these items and used them in whatever way was most convenient for them and for completing their procedures.

For me, this presented a very tough management challenge. I could budget for the cost of equipment, overhead, and salaries, but not for supplies. This very significant cost item was at the mercy of personnel and physicians who had never been expected to be directly involved in "supply cost management." I knew several things would have to change.

Strategy: Inclusion
Our staff then and now is professional and caring, and I knew it wasn't so much that they didn't care about controlling costs. The problem was, they didn't know how.

The backbone of my strategy was to include and educate the staff and place them in control. During a slow period when the surgeons were on vacation, I assigned my entire staff - front desk, billing, housekeeping, nurses, and scrub techs - to research the costs of various disposables. Then, everyone shared what he or she learned with the rest.

Once the staff learned about costs, we worked together to cost out everyday tasks and surgical cases. For instance, we figured out what it cost to make a patient chart, including the cost of 3M paper (35 cents a sheet), the cost of collating, and the cost of duplicating.

As a result of this exercise, I discovered that my staff didn't really know the language of cost management. They had never learned to think of a staff member's time as a cost to the ASC, nor did they think about the cost of very basic supplies, like pens and paper. When they learned what I meant by costs, they began to really think about how to reduce them.

I also educated the staff about reimbursements and overhead. They learned what we were actually paid for each case. They also learned about fixed overhead that the ASC had to cover regardless of our reimbursement amounts. This helped them realize that controlling the cost of disposables and other supplies was vital to the financial success of our ASC.

Then something happened that I had not anticipated - the staff began to educate the surgeons about costs! When the doctors realized what disposables cost, they began to make an effort to avoid waste. For instance, the surgeon would get one last stitch out of a suture, rather than reaching for a new pack and using just one. For a few seconds of effort on the surgeon's part, the ASC might save $35.

Ideas and savings roll in
Our staff came up with some great ideas that helped us save. One of the simplest ideas that worked well was to move most of the supplies out of the ORs. We reasoned that it's only human nature to use more supplies if they're right within reach.

In the OR, we kept only what we needed for an emergency, such as equipment for airway management or to control bleeding. We moved everything else out. The disposables were still accessible, but took just a bit of effort and a few seconds to retrieve.

To make this system workable, we changed our staff assignments slightly. There was a clean room between the two ORs and immediately accessible to each, and we made sure someone was in that clean room whenever surgery was being performed. If the surgical staff needed any extra supplies, the clean room person could retrieve them in a minute.

Once our staff and surgeons learned about the variation in costs from brand to brand, they worked together to standardize our supplies. Very often, surgeons had no trouble adapting to a different brand once they understood the cost saving to the ASC (in a few cases when a change in brand affected potential outcome or surgeon technique, we would simply back off).

Another part of my strategy was to assign staff from the appropriate departments to take charge of purchasing. Since the staff knew exactly what they needed, we were able to stock the right kind of supplies. We also became more adept at keeping just the right amount of supplies without overstocking.

After implementing cost-saving ideas and letting the staff handle purchasing for a year, we cut our supply costs by 30 percent! We've used the same methodology to control costs ever since, which has been important as the cost of supplies increased and reimbursements decreased.

Other tips
After a year or two, we developed a system for purchasing and negotiating contracts. In about October or November, each department would look back at what it had purchased over the year, look for trends, and think about ways to improve quantity ordering. We put together a good estimate of what we'd need for the coming six months in solutions, IVs, sutures, booties, gowns - you name it.

Then I took the order to the vendors, guaranteeing that we would purchase at least 10 months' worth of supplies from the vendor that met our needs. This gave the vendor a guaranteed volume, so we got a volume discount. We also sought the option to purchase additional supplies at the same price.

This technique saved us time and money in other ways. We no longer did monthly or periodic purchase orders, since the items we had ordered simply arrived each month. The vendors placed us on an installment billing plan based on our 10-month order (additional supplies were billed separately).

I did a fair amount of shopping around before finalizing contracts. I used my background in federal bid specs to seek bids that would encourage the vendor to offer an alternative to higher-priced, name brand items. For instance, I would ask for a certain brand of syringe "or equivalent." The vendor often could give us a better bid price, and I was assured of equal quality.

For expensive items we didn't use often, we asked for consignment ordering. We would order those items one week in advance of needing them. In most cases we got 72-hour delivery and 30 days to pay for the items.

I took charge of negotiating contracts, since I was more aggressive than the staff. I found it beneficial to negotiate large purchases right at the end of December, between Christmas and New Year's because:

- Salesmen often were on vacation, and managers with decision-making powers were present;
- They were eager to move inventory before the end of the year; and
- Many companies had demo products (stretchers, IV poles, stainless steel tables) that they planned to replace for the upcoming shows. They were willing to let us have them for a discount.

Our organization is now in the process of building a larger ASC, and we'll be trying a few other ways to save when we get into the new building. Certainly, we will use our computer system more to track purchases and control inventory levels. We're also thinking of going to a "just in time" type of delivery system so that supplies arrive exactly when we need them.

One thing we'll keep the same is the staff involvement in cost control and purchasing. I encourage you to adopt a similar policy in your facility. Your staff has the knowledge you need to manage inventory wisely, once you give them what I call "reality knowledge." When you make them aware of the issues and give them the tools and the control they need to make intelligent decisions, you'll have the team you need to keep your facility running at peak efficiency.