Reviewing GPO contract important part of controlling surgery center expenses

by | Jul 3, 2012

Controlling expenses is crucial to running a profitable surgery center. Jessica Nantz, president of Outpatient HealthCare Strategies, discusses five regular actions that help control expenses at an ASC.

1. Understand your cost per case. Ms. Nantz says the first step to controlling ASC expenses is to understand the costs involved in every case you perform. “You need to know the staff, supply, medication and implant cost for every case,” she says. “If you don’t know your cost per case, how do you control your cost? How do you which cases are profitable?” She says cost per case should be divided into four areas excluding overhead:

• Pre-op
• Anesthesia
• Operating room

For each area, you should understand the different costs and how they contribute to the overall cost of the case. That way, you can determine which cases your supply costs are highest and which areas have the biggest problems with staffing expense. She also recommends tracking cost per case by physician and specialty, to help you understand which physicians cost more in terms of supplies and which specialty cases are most and least profitable. Case costing by physician also sets a baseline for best practices.

She says preference cards need to be updated regularly to make sure your supply cost per case is accurate. Ms. Nantz recommends asking OR staff members to go through the physician’s preference card at the end of the case and mark down which supplies were not needed and which were substituted or added. Then regularly update the preference card in your software system.

2. Review 2-3 standard vendor contracts a month. Ms. Nantz says many ASCs keep binders full of vendor contracts that are to be reviewed on an annual basis. Many administrators leave this review until the end of the year and then skim their contracts, ultimately leaving money on the table because a thorough review in a short period of time is unrealistic. Instead, she recommends reviewing two or three standard vendor contracts every month and looking for areas to cut costs or improve quality or efficiency.

Each contract should be reviewed for service, quality and price. “Service is always the easy one,” she says. “Talk to your staff. Ask whether the vendor is responsive, whether the vendor brings the supply on time, whether the vendor works with the surgery center to ensure the right supplies are provided.” In terms of quality, talk to clinical staff and physicians to determine whether your current products are having the desired outcome. To evaluate price, call other companies and compare costs and determine how much you could save by switching vendors. Ms. Nantz says price should not be the only reason for dropping a vendor; quality and service are equally important and may give you reason to pay a little extra.

3. Challenge your pricing. Challenging your rates can be intimidating, but it’s essential to make sure you’re getting the best price from your vendor. Ms. Nantz recommends starting with high-volume and high-price items — those you use the most and those that cost you the most money. “Review your most common items and make sure your vendors are giving you a good deal,” she says.

She says this also applies if your center uses a GPO to purchase supplies. Review your GPO contract and determine whether your membership is benefiting the center. “Sometimes in a GPO, you may be required to purchase a certain volume to get a discount,” she says. “You need to review those terms to make sure you’re really saving money.”

4. Audit your materials manager. Ms. Nantz recommends auditing your materials manager regularly to make sure he or she is saving you money. “You really need to monitor how the materials manager is assisting the administrator in expense control,” she says.

Make sure the materials manager is reviewing supply costs and shipping fees on a regular basis to look for savings opportunities. Hold a regular meeting to discuss your target for supply costs and any outliers the materials manager has seen while ordering, receiving and stocking supplies. Review your inventory every month; if you see it was $100,000 last month and $125,000 this month, ask your materials manager for an explanation to catch any issues early.

5. Involve all levels of staff. Expense control should be a regular agenda item at your monthly staff meeting, Ms. Nantz says. “An administrator cannot monitor expenses alone,” she says. “They need to engage the team so they can assist in saving you money.”

Ms. Nantz says you should print out cost per case information and provide it to staff and physicians at your monthly meeting. Go through the information and explain how different areas of the surgery center impact expenses. “Engage your team,” she says. “The more they are involved, the more they learn, the more they will assist you in saving money.”

From: Beckers ASC Review

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