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Want savings? Focus policies on cost control
Standardization nets one program $500,000
(Editor's note: This is the first part of a series on saving money in outpatient surgery. In this issue, we discuss some specific ideas about how to save with equipment and supplies. Future stories will discuss contracts and the position of cost control manager.)
Managing costs for an outpatient surgery program is an ongoing challenge for all managers, but the challenge is not insurmountable, according to experts interviewed by Same-Day Surgery.
"Two key areas for cost control in an outpatient surgery program are equipment and supply costs," points out Paul R. Nylander, principal with Woodrum/ASD, a Warrenville, IL-based firm that develops, manages, and operates ambulatory surgery centers throughout the country.
Managers don't always approach cost cutting in these areas in the right way, Nylander says. "We spend a lot of time looking for ways to cut costs on an item-by-item basis, but the key to success is to identify the key problems and put good controls into place to prevent these problems from recurring, which will raise costs again." Good controls include policies that describe specific processes for approval, designation of certain people to oversee review or purchasing of supplies, and guidelines for addition of new supplies to inventory, he adds.
Standardization enables you to generate additional discounts, says Dave Putnam, operating room business manager for Rochester (NY) General Hospital. After reviewing the contract for endoscopic surgical equipment and supplies, standardizing the inventory, and planning to purchase 85% of all endoscopic purchases from one vendor, Putnam was able to save his department a estimated $500,000 minimum over a year for the facility, which performs a high volume of endoscopic procedures. While individual prices for specific items might be less expensive at another vendor, it is important to look at the overall package price, he points out.
Evaluate contract prices regularly
Contracting with vendors for specific volumes to obtain discounts, or participation in group purchasing agreements, is a way to control everyday supply costs, says Nylander. However, having a contract with a vendor does not ensure that you are getting the best prices possible, he warns.
"It's important to regularly review your key items and compare costs with other vendors," Nylander suggests. It also is important to conduct these reviews well before, at least 90 days, the renewal date of existing contracts so that you have time to make decisions and meet any non-renewal notification dates, he adds.
Paying attention to contracts and expiration dates is a challenge. Darcy Thor, MBA, senior accountant at Harmony Ambulatory Surgery Center (ASC) in Fort Collins, CO, suggests using a spreadsheet or other organizational system.
"In my ongoing quest to be organized, I have created a spreadsheet to track all of my contracts and expiration dates," says Thor. "While [creating this spreadsheet], I have been double-checking that we are buying supplies on contract and seeing if I can move to a higher-tier pricing based on our volume or utilization," she says.
Equipment and supply plans, or templates, help control costs by avoiding unnecessary inventory, Nylander says.
"Make sure that your volumes and types of procedures justify the purchase of new equipment or different supplies," he says.
Evaluations should address expected reimbursement levels for procedures for which you use the equipment, anticipated volume, and cost of equipment or supplies, Nylander says. Ask yourself if you can cover the cost, or recoup the investment in a reasonable timeframe, he suggests. Remember, too, that each outpatient program is different, so there is no one target for volume or reimbursement, he says. "Even though some of your physicians might prefer a particular piece of equipment, the volume may not justify purchasing the equipment; so look at the feasibility of leasing the equipment on an as-needed basis," Nylander says.
Having a process that ensures careful evaluation of equipment purchases is necessary, Thor says. At Harmony ASC, not only do physicians or staff members have to describe the equipment, its use, and its cost, but they also have to explain alternatives they considered, whether used equipment can be purchased, and what will happen to the equipment being replaced. "We also want to know if the equipment requested represents new technology that can enable us to handle more cases or handle existing cases more efficiently," she adds. [Click here for a copy of the ASC's capital and minor equipment request forms.]
Establish vendor policies
Establish clear policies about the use of trial equipment, says Putnam.
"Our policy says that surgeons cannot try the equipment in a case until the potential purchase of the equipment has been approved financially," he explains. This policy avoids situations in which surgeons develop a preference for equipment that cannot make it through the purchasing evaluation process, Putnam says. "We also insist that all demonstrations or trial uses of equipment are free," he adds.
Before Putnam's position was created, sales representatives would visit physicians directly to promote the benefits of their products, but now all vendors have to see him first. With no control, trials of equipment would occur without any financial evaluation, says Putnam. "We would be charged for the use of the equipment or supplies in some cases," he adds.
After implementation of the policy, one surgeon who came in on a weekend for a case called the vendor's representative directly and asked to use equipment that had not been reviewed. "It was a $3,000 product, but I informed the sales representative that we would not pay for it, and furthermore, if she or any other representative from the company brought equipment into the hospital without my approval, the company would be banned from visiting the hospital," he says. Although vendors had been notified of the policy when it was implemented, word of mouth reinforced Putnam's intent to enforce the policy, he adds.
The most effective way to oversee cost control is to have one person in charge of the function, says Nylander. "Unfortunately, in many outpatient surgery programs, you might have a surgical technician who spends 60% of his or her job overseeing supplies and 40% in the operating room," he says. Splitting the job does not allow the tech to really evaluate and compare costs, he says.
Having the time and opportunity to focus on costs made it possible for Thor's small savings on gloves to turn into more significant savings. The glove chosen for purchase was manufactured by the same vendor from whom she buys drapes, gowns, and other supplies.
"Our representative who came in to talk about different gloves and pricing offered to register us into a rebate program that would give us a 7% rebate on all purchases from the company," she says. "Although we might have eventually learned about the rebate program, we learned about it early in the process because I had the representative in my office."