Finance-to-Nurse Interpreter
Demand matching. Assessing the best product for a particular type of patient (for example, should an 80-year-old, semi-ambulatory patient receive a different hip implant than a 52-year-old tennis player?)
Group purchasing organization (GPO). There is purchasing power in numbers. When hospitals group together to buy supplies, they can usually get a better deal on the supplies. A GPO is an organization that leverages the buying power of a group of healthcare organizations to obtain discounts from vendors. Hospital purchasing departments typically contract with GPOs to purchase commodity type supplies, such as bandages, drapes, office supplies, etc.
Negotiating standing order contracts. When a hospital uses a large amount of a particular product each year (such as disposable diapers or latex gloves), the purchasing staff will negotiate a standing order contract with a vendor for the entire year to take advantage of volume discounts. This is also more efficient because as the vendor can automatically ship the goods to the hospital each week or each month, so it is not necessary to find storage space for a year’s worth of supplies. Because hospitals only pay when the supplies are received, they can still pay on a periodic basis while getting the volume discounts.
Time-related payment discounts. Many vendors give discounts if a hospital pays its bills in a timely manner. These discounts are often indicated with abbreviations such as the following:
- 2%10-N30: If the invoice is paid within 10 days of the invoice date, the purchaser may take a 2 percent discount; otherwise, the entire amount is due within 30 days.
- 2%10-EOM: The purchaser may take a 2 percent discount if the invoice is paid by the 10th day following the end of the month. For example, a December invoice must be paid by Jan. 10 to get the discount.
These discounts are not applicable to sales taxes or freight charges.
Inventory shrinkage. This is another term for theft. Many hospital supplies are quite valuable, and are susceptible to theft. Hospitals should have security in place--both technological and physical--to protect expensive and potentially dangerous supplies, such as narcotics or certain mind-altering substances.
Inventory turns. Inventory turnover is the number of times inventory is replenished in a year. Many hospitals have too much inventory on hand. By reducing inventory on hand, hospitals can save dollars. One way to do this is to simply use up the excess inventory and not buy more until the correct inventory level is reached.
Item master. A hospital’s supply inventory list. The average hospital has 40,000 to 50,000 supplies--from bandages to cardiac stents--listed on its item master
Physician preference items. Expensive medical devices, such as orthopedic implants, heart valves, bone products, balloons and wires. About 40 percent of a hospital’s supply budget is spent on physician preference items.
Procurement. Supply procurement involves many people in a hospital: clinicians who evaluate and select products, materials management professionals who negotiate contracts, and purchasing staff who review and pay invoices.
Product standardization. Organizations can attain price discounts by purchasing more of a single item/brand product from one or two vendors.
Rotation of stock. Sometimes known as FIFO or “first in, first out,” stock rotation prevents supplies from expiring or becoming obsolete and therefore needing to be destroyed before they can be used. This means that you always use the oldest supplies first (assuming, of course, that their expiration dates have not yet passed).
Supply utilization. Hospitals can often identify ways to maintain and possibly improve patient care while reducing supply costs by looking at how a particular product or medical device is used.
Value analysis. Value analysis is a process to evaluate products and services based on clinical effectiveness, patient safety, and cost. Value analysis involves assessing the quality as well as the cost of a product or service. In other words, what is best for the patient? How can we give them the best possible care at the lowest possible cost?
Donna Gellatly, MBA, FHMFA, CPA, professor emeritus in the Health Administration Program at Governors State University, lent her expertise in defining some of the terms highlighted here (DLG2727@aol.com).