Standardization of Healthcare Supplies in Healthcare organizations

AbstractResearch has proven that the healthcare organizations need to be more attentive to their code pricing list in order to avoid over charges and low revenue of their supplies and encouraging their staff members to utilize one vendor will decrease costs. Quarterly inventory was examined to decipher the problem. Spreadsheets (graphs) were also conducted to provide a complete view of where the losses occurred. The research has proven that regular inventory of supplies, minimal vendors, and update of code pricing list is mandatory in eliminating or decreasing high cost. More in depth information is discussed.

Feeling overwhelmed with requests for a huge variety of medical supplies, then you’re not alone. The biggest expense in the medical industry is having multiple manufacturers for one product. This forces hospitals to seek savings opportunities at different levels. One opportunity for substantial cost savings most hospitals consider is the knack to control the expensive products highlypreferred by doctors (Fine, 2004).

Today, Healthcare organizations thrive to cut supply costs by the standardization of their product usage. The secret to successful product standardization is making certain that the process includes all stakeholders ( A number of organizations have found that it helpful to also have a product standardization committee. The committee should include knowledgeable physicians partake in the technology assessment product standardization committee; to empower the physicians who are not willing to comply.

The committee should also have a physician from different services, focusing on high-dollar physician preference products. This allows for new products to be presented to the committee for review, consideration, and approval on a monthly basis (Fine, 2004).

The key to assuring cost savings through product standardization is to appropriately educate doctors about the vital role they play in this process. Communicating the cost implications for the organization to the physicians cansometimes motivate the physicians to ensure compliance (Golden, 1997). As founded in Fine (2004) this can be accomplished by:Distributing data regarding cost and quality of alternatives.

Demonstrating superior benefits, including reduction in variation and chance of errors.

Providing both financial and non-financial incentives to doctors to gain their support in standardizing.

Evaluation criteria for consideration should also be formed in the committee. This should show the general product, usage information, and product evaluation standards.

Methodology:Purpose:To establish standardize pricing for supplies used during procedures according to the current rate payable by insurance in accordance with CPT-9 procedure codes.

Method:The current pricing system charges a twenty-five percent fee to the supply price used during service. The price list has not been updated in three years. The function of standardizing the price is to reduce pricing and increase revenue. The recommendation for establishing uniformity is:a.Review current system price list, vendors, and bottom line under line cost.

b.Unify the staff members (doctors) to obtain one vendor to reduce cost of shipping.

c.Update the current CPT-9 procedures code pricing in the computer systems.

d.Establish a product standardization committee.

Duties and Responsibility:e.Review all vendors for:(1)Pricing(2) Shipping time(3)Availability(4)Usage of productEVALUATION CRITERIA FOR CONSIDERATIONA. GENREAL PRODUCT INFORMATIONItem Product numberManufacture address and phone numberLength of time on the market and manufacturer reputationRegulatory agency approval (e.g., FDA, EPA, OSHA)Infection control issuesB. USEAGE INFORMATIONDoes the staff have previous knowledge of the product?

If so how often? When? What department?In what volume?Is this a “stand alone product?”Is this product used in connection with other products/ systems?C. PRODUCT EVAULATION STANDARDS:(Evaluators should apply weighted values to those standards believed most important).

Convenience/Easy to useClinically effectiveSafe for the Patient/StaffReliabilityDurabilityTraining requirementEase to CleanAdaptable to current equipment (Meadows).

When Katherine Sarisen was identifying the problem for her company Concentra Medical, she found out there was a loss of revenue due to under coding or under pricing; a great deal of revenue was lost during the first quarter. The only way to control the hemorrhage was to compare the fee schedule or usual and customary reimbursement of each state to the current costs of each usable supply inventoried each quarter.

When researching the data from Concentra Medical, it was found that the current inventory was billed below the fee scheduled, compared to the cost of the supply. This is where the loss of revenue for the provider is caused. The diagram below will show a partial loss of revenue in a one month period.

ORTHO SUPPLY (partial)Durable goods/provider costs Amount dispensed Durable goods/fee schedule LossHinged knee support–$52 4 = $208 $46 = $184 $24Knee sleeve–$11 22 = $242 $7 = $154 $88Tennis elbow support–$15 17 = $255 $10 = $170 $85Ankle gel support–$28 36 = $1008 $19 = $684 $324Thumb spica–$15 26 = $390 $12 = $312 $78Carpal tunnel wrist splint–$30 30 = $900 $22 = $660 $240——————————————————————————————-$3003 $2164 $839It was evident that there was significant profit loss.

With a one month snapshot of a partial comparison, calculated to a quarterly average loss of $3,356 plus an annual average loss of $10,068. By obtaining the costs analysis of all durable goods, the provider would be able to increase his billing prices to those of usual and customary fee scheduled.

However, as costs increase on anannual basis, how does the provider ensure that his cost to customary billingratio balance? So that he does not loose profit?Accounting:Accounting for inventory on a quarterly basis will allow changesin pricing before the problem grows out of control and is significantly lost.

Location # :1922 Center Name:Current Date:03/31/05 Phone # :TaxRateCurrent:10.75% Counted By:TaxRatePrev:10.75%Current Count TotalsTotal Total Sales Total InventoryPages:Count Inventory Tax Include Tax BESSE 15 $ 1,062 NA $ 1,062EMPI 12 $ 60 10.75% $ 66McKesson 399 $ 3,272 10.75% $ 3,623MPP-St Mary’s 343 $ 2,602 NA $ 2,602NHD 17 $ 830 10.75% $ 920Sammons Preston 49 $ 24310.75% $ 269Royce Medical Supply – – 10.75% $ -Other Vendors – $ – 10.75% $ -Total Inventory 835 $ 8,069.05 $ 8,542.59This spreadsheet allows the manager to visualize the cost increase inquarterly inventory. This can be compared to previous quarters.

This can alsobe broken down into pages, which then break down the cost per goods. This isalso a good tool for supply management, regarding seasonal ebbs and flows.

Annually the fee schedule must be checked and compared to currentsupply costs, as these change rapidly. Another method for control is to have aspreadsheet that logs the costs to the correlating CPT code and the supplyinventory in an accounting computer system. This will allow for accurate codingduring the billing process, as oppose to four months later.

In conclusion, to avoid feeling overwhelmed and the unnecessary expenses of purchasing a specific item from multiple suppliers, some healthcare organizations are opting to standardize their supplies. Their main purpose is cost savings. Some recommendations are needed to establish uniformity within the organization, such as: encouraging staff members to utilize one vendor in order to avoid shipping expenses, implementing a standardization committee, and updating the current CPT-9 code pricing.

If the CPT-9 code list is not updated, at least annually, it can cause a loss of revenue due to under coding or under pricing. Another way the healthcare organizations can manage their cost analysis is by inventorying their supplies quarterly (

So, by better understanding their supply spending, and incorporating care processes into decision-making, organizations can reduce inventory and achieve greater standardization. This is why today, Healthcare organizations are thriving to cut supply cost by standardizing their product usage.

References:Fine, A. (2004). Standardizing Physician-purchase preferences: from myth to realty. Retrieved May 21, 2005 From (http://), Robert F. March (1997). Information System Integration: Open Systems and Healthcare. Journal of AHIMA Focus. McKesson Provider Technologies-solution: Resource Management. Retrieved May 21, 2005 From (, M. (2005). Product Standardization Committee.

Standardization. Retrieved May 21, 2005 From (