Reducing Supply Costs, the Regent Success Story

At Regent we are always looking for ways to improve profitability and decrease costs. Supply costs, including implants, frequently represent 20% or more of a surgery center’s net revenue. Reducing supply costs is critical to a surgery center’s success and profitability. By methodically implementing four key strategies, Regent has lowered its overall medical/surgical supply and pharmacy costs for its sixteen facilities by more than $500,000 per year.

Step 1 – Choosing the right Group Purchasing Organization

With a diverse case mix among our centers, it was critical that Regent choose a primary Group Purchasing Organization that would maximize our savings potential. We chose Novation, and spent approximately 6 months converting our centers from a variety of competing GPO’s. Approximately 60% of our spend was available under contract with Novation. To fill the majority of our remaining 40% non contracted spend, we selected Amerinet.

Step 2 – Implementation of a Web Based Materials Management Information System

The key was to understand the purchasing habits of our diverse group of surgery centers. We needed to know what we were buying, how much as a group we were spending, and if we were getting charged the correct contracted price. The challenge was to link all of our facilities to one data base that contained accurate data. By implementing a web based MMIS system, we were able to build a clean data base at each center and assess their purchasing trends. The knowledge that data provides, along with the addition of new centers, allows us to continue to aggregate our purchasing volume to attain better pricing. As we continued to achieve higher tiers and maintain our data base, we executed the “A/P 3 way match” module in our MMIS web system that interfaces with our accounts payable software. This component of our MMIS blocks payment on any line item that has been billed incorrectly, allowing us to identify efficiently situations in which we are not being given contracted prices. Consequently, we are getting the full benefit of our negotiated pricing!

Step 3 – Standardizing Distribution

When looking to standardize distribution, we looked at three key points; negotiation of a contract that would reduce costs for all of our centers, the distributor’s cost-plus pricing on self manufactured items, and a reduced cost-plus for direct buy items. We also wanted a corporate partner that provided dedicated account management at each center, the technology to audit and verify our cost savings, and a liaison between our GPO and our distributor. Regent partnered with Cardinal Health for medical surgical distribution and has recently begun a complete conversion to the Cardinal Health Pharmacy system.

Step 4 – Case Costing

With accurate data in our MMIS, maximizing our contract portfolio thru our Group Purchasing organization, and standardized distribution, we have begun to develop tools for case costing within each facility and across centers. By identifying supply costs within a center that vary from physician to physician, we work to achieve physician buy in for transition to products that would consolidate our purchases to a group of selected vendors, giving us the bargaining power to reduce costs. Assessing case costing data Regent wide allows our Administrators to evaluate costs for supplies that differ from center to center. Often these supplies are not physician preference, but have been in stock and never considered for change. By reducing the cost for each case of supplies by as little as $10, a center that performs 3000 cases per year can save $30,000 per year.

We remain committed to getting better at this important function. After laboring away for nearly three years, we expect our administrators to soon have profitability by case at their fingertips. Thank you for your help and contribution to our efforts. We look forward to continued lower costs and greater profitability in the months ahead.
 

Amy Gagliardi, Corporate Purchasing Director
Regent Surgical Health
P. 708.686.1522
F. 708.731.5134