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How to right size your purchasing and inventory practices when patient days drop

Posted Aug 25 2010 3:43pm 1 Comment

By John Cunningham

Colleagues across the country tell me that their patient volumes are soft which is driving their expenses out of line with expectations when adjusted for volume.

This is a growing issue as inpatient volumes continue to be flat or down for lower acuity patients while many hospitals are experiencing growth and stronger volumes in some of their more complex patient populations, who need implantable devices such as stents, pacemakers, and total joint replacements.

When the expense of high cost, complex volume is spread across a smaller base of adjusted patient days, the expenses are naturally inflated.

In times like these, supply chain executives and their teams have to be ever more diligent in helping end users right size their purchasing and inventory practices, and serve as a catalyst for improving these critical financial processes to ensure expenses are held in line or appropriately minimized.

Inventory in hospitals, outside of the central supply or storeroom, is largely unmanaged and can account for significant dollars on the balance sheet. The result is dollars that could otherwise be put to use in capital investments or accrue interest for the future are left on the shelf collecting dust.

Because the management of inventory in our high cost departments such as surgery, cardiac cath lab, and special/interventional radiology is often delegated to clinical staff, it is no wonder that there is disparity in utilization and inventory on hand. The same is true for ordering practices. Clinical staffs are primarily focused on the delivery of safe, quality care. Therefore the supply chain duties that they assume or demand for their own comfort and control are the last duties to get fulfilled and often are completed in haste at the end of the day/shift in order to "cover the unit" or in reaction to an event such as a stock-out.

Often clinical departments are not aware of the financial and operational implications of their ordering and inventory practices. For example, clinical departments will participate in "bulk/forward buying" to save on the line item cost but then expense the purchases in a single period rather than accrue them into future periods or account for the purchase as inventory or pre-paid.

Additionally, the ebb and flow of demand that results when inventory and ordering practices are inconsistent creates operational challenges for the suppliers fulfilling the order. Suppliers rely on standard and disciplined supply chain practices that include demand forecasting and thus are challenged when these spikes in demand occur.

To be of service, supply chain executives and their teams need to be more visible and helpful as ever. We must get out in the hospital/s and walk the inventory locations and procedure rooms with an eye for excess inventory, waste, and obsolescence. Discuss with our clinical department head colleagues the ordering practices of the unit and offering assistance and/or tools such as perpetual inventory technology, while underscoring the overarching need to reconcile purchases with use and charges (as appropriate).

There is an abundance of evidence that supports supply chain executives having oversight and accountability for the inventory and purchasing of all departments in the hospital.

To assign the responsibility to the clinical staff is much like a restaurant deciding that the mission critical role of the kitchen warrants the chef doing all the shopping and stocking of ingredients.

You might laugh but in reality it is what we in healthcare have done by bypassing the supply chain expertise of the company in deference to the sacred "red line."

Better performing supply chain departments as measured by expense management,inventory practices, standardization, customer satisfaction and contract management do not stop at the "red line" but in fact partner with the clinical departments with a shared sense of purpose and genuine interest in delivering results that are at a standard as equal to the quality of the care provided by the clinical department.

Supply chain is the fuel within the monstrous hospital ship and the supply chain team has to step up and cross the "red line" to ensure the basic principles of supply chain management are deployed and add value to the organization's bottom line. Volume, case mix, and reimbursement are well beyond the supply chain executive's scope but leadership in deploying supply chain best practices during these difficult times is an imperative and basic expectation.

John Cunningham is VP, acute division, supply chain operations at Universal Health Services, Inc. He has extensive experience turning around and leading hospital supply chain operations in some of the nation's leading academic medical centers and large integrated delivery networks. In addition to his current position with UHS, John is also a member of the adjunct faculty in the Drexel University School of Nursing and Health Professions and served in the United States Navy.

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