According to Definitive Healthcare data, U.S. Clinics reported a combined $36 billion in medical and surgical supply costs in 2018—averaging $11.9 million per clinic. Medical supply costs remain one of the most significant expenses in clinics and other healthcare facilities, second only to labor costs and administrative expenses.
Notably, supply chain spending represents about one-third of total operating expenses at U.S. medical facilities. Note that this medical and surgical supply cost metric is sourced from the Medicare Cost Report, and includes the cost of medical devices, implantable devices, and pharmaceuticals charged to patients without overhead costs.
According to reports, the general healthcare service is progressively besieged with new medical supplies. Therefore, it is always necessary to maintain medical equipment proficiency to give quality care and cut expenses. Be it labs, hospitals, or clinics, the medical services industry utilizes a huge assortment of specialized devices and equipment, to provide a better service to patients.
Quality medical supply does not only provide high-quality patient care but as well as saves expenses. Basically, medical clinics have to offer great consideration utilizing fewer assets at a decreased expense. It is significant that while you cut the cost, you should not undermine the quality of care.
According to a 2020 SpendEdge report, medical facilities supply chain costs will continue to exceed labor expenses even in 2022. It’s likely, however, that the impact of the COVID-19 pandemic has already caused U.S. medical institutions to surpass that prediction in supply chain spending.
But while group purchasing organizations (GPOs), streamlined distribution, and better inventory management can produce meaningful supply cost savings, there are other factors that can play an equally important role when it comes to the cost of a clinic’s medical supplies.
Factors That Can Influence Cost Of A Clinic’s Medical Supplies
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On average, medical and surgical supply costs are much higher at clinics operated by an integrated delivery network (IDN) than at independent, unaffiliated clinics. In 2018, industry reports showed that IDN-operated clinics reported an average of $15.2 million in medical and surgical supply costs, compared to an average of $4.9 million at independent clinics.
However, these medical and surgical supply costs account for a greater share of total supply costs at independent clinics than they do at IDN-operated facilities. For example, medical and surgical supply costs represented over 60 percent of the total supply budget at independent clinics in 2018, while these costs accounted for just 54 percent of total supply expenses at IDN-operated clinics.
Also, note that the difference in budget share could be due to the fact that large IDNs can easily leverage their size and market influence to negotiate supply costs for their member facilities in much the same way that a group purchasing organization (GPO) would.
And although IDN-operated clinics are spending a much greater amount on medical and surgical supply costs than independent clinics, the discounted rates that these facilities gain through their health network mean that these costs account for a much smaller percentage of their total supply budget.
Have it in mind that Clinics in the South-eastern United States have the highest medical and surgical supply costs, with an average cost of $14.48 million reported in 2018. Most other U.S. regions reported an average medical and surgical supply cost at or around $12 million in 2018, with the exception of clinics in the Western United States—which reported the lowest average supply cost at $9.81 million.
However, even with their slightly lower average supply costs, clinics in both the Midwest and Southwest regions reported medical and surgical supply costs as a higher percentage of their total supply budget. In 2018, medical and surgical supply costs accounted for 59.3 percent of total supply costs at Midwestern and South-western clinics. When compared, medical and surgical supply costs made up 10 percent less of the total supply share at North-eastern clinics
Number of Beds
Note there is a strong correlation between reported medical and surgical supply costs and clinic bed count. According to reports, clinics with 25 beds or fewer spent an average of $2.24 million on medical and surgical supplies in 2018. Meanwhile, bigger hospitals with 250 beds or more spent an average of $56 million in medical and surgical supply costs—nearly 25 times the amount reported by smaller facilities.
Indeed, it is not surprising that clinics with a larger bed count would also report larger supply costs. High-capacity clinics have a greater number of patients to care for than small healthcare facilities and, owing to this, need more resources and supplies in order to administer proper care to all patients.
Though medical and surgical supply costs are lower at clinics with 25 beds or fewer, have it in mind that this expense actually accounts for a much greater portion of the total supply budget at low-capacity facilities. In 2018, medical and surgical supply costs accounted for 63.4 percent of the total supply expenses at clinics with 25 beds or fewer.
Meanwhile, at high capacity clinics with 250 beds or more, medical and surgical supply costs made up only 43.5 percent of total supply expenses—almost 20 percent less than the budget share at low-capacity clinics.
Have it in mind that cost awareness is just one component of any strategy to rein in supply costs. The clinical effectiveness of medical devices is just as crucial but isn’t as easy to calculate—especially for smaller organizations that may not have the case volume or analytic capabilities to analyze thousands of procedures and outcomes. Howbeit, many clinics, and health systems turn to third parties that specialize in comparative effectiveness research.
Physician Preference Items (PPIs)
Note that the concept behind this variation in supply costs is not related to provider skill, but to choice of supplies—a category in clinic supply chain circles known as physician preference items (PPIs). PPIs are preferred tools or other devices commonly used by physicians in their day-to-day practice.
Although these were intended as a way to ensure that physicians were using the most suitable supplies for their patients, they have increasingly become a costly component of total clinic supply expenses. According to reports, some top clinics—like the University of Texas MD Anderson Cancer Center—spent as much as $974 million on medical and surgical supply costs as of July 2020.
Since physician preference items may be more costly than comparable alternatives and account for anywhere from 40 to 60 percent of a clinic’s total supply costs, these items often contribute to excess supply chain spending.
Furthermore, PPIs may have the same clinical effectiveness as other more cost-effective alternatives and may, in some cases, even be associated with worse clinical outcomes. Note that some physicians may favor a particular device or brand simply due to long-term use, and not necessarily because the item actually has proven benefits over another.
Reducing supply costs isn’t as simple as finding the lowest price. As the studies suggest, real improvements require a dedicated effort in which supply chain staff, providers, and administrative personnel can share information and determine a medical device’s actual impact on outcomes and spending.