How to save money by improving your inventory management

February 5, 2009

The process of ordering and managing medical and office supplies and drugs gets little attention from most primary care physicians and their staffs. But as pressure mounts to reduce costs, improving inventory management can be a fruitful place to look for savings.

Key Points

The results were dramatic. In the 18 months after she joined the practice in June 2007, supply expenditures fell from $218,900 to $205,766, a decrease of 6 percent. During the same period, patient visits at the practice were on the rise, from 12,372 to 12,951.

The process of ordering and managing medical and office supplies and drugs gets little attention from most primary care physicians and their staffs. But as pressure mounts to reduce costs, improving inventory management can be a fruitful place to look for savings.

A recent MGMA survey found that the median expenditure on drugs, medical and surgical supplies, and administrative supplies for a family practice represents 8.53 percent of its annual collections. (For internal medicine, ob/gyn, and pediatric practices, the percentages are 5.69, 5.84, and 21.95, respectively. The large percentage for pediatric practices is attributable to vaccine expenditures.)

Using the median annual collections for family practices of about $600,000, the outlay for drugs and supplies amounts to an average of $51,179 each year.

SHOP AROUND

Good inventory management begins with getting items at the most economical price. Most practices order medical supplies through commercial vendors, and experts advise working with the vendor's representative to reduce costs.

"I tell all my clients to develop a close relationship with their vendor," says Cynthia Dunn, a senior consultant with the MGMA. "They'll have a record of all your ordering and can offer suggestions of ways to hold down costs."

At the same time, don't be afraid to comparison shop. "What I like to see is a black-belt shopper who will say to their sales rep, 'Here's what I can get it for in the catalog, and you've got to beat it,'" says Judy Bee, a principal with Practice Performance Group in La Jolla, California.

Donna Weinstock, president of Office Management Solutions consulting in Northbrook, Illinois, suggests constructing a spreadsheet with the name of the vendor, the unit price, and the quantity the practice orders. "That way it's very easy to look and see if I buy from vendor A it will cost me this much, and if I buy from B it will cost me this much," she says.

Linda Behlmer, director of operations for the Family Medical Group in Cincinnati, orders most of her practice's medical supplies through Physician Sales and Service (PSS). But every 18 months or so, she conducts a price comparison with two or three other vendors. "If I find they can offer a better price, I'll go back to PSS and ask them to match it," she says. "They will almost every time."

In addition, Behlmer recently began ordering vaccines and other injectibles directly from pharmaceutical manufacturers in order to take advantage of a 2 percent discount for online orders. She also gets a 1.5 percent price break for paying within 30 days (rather than the standard 60 to 90 days) and a 1.5-2 percent discount for ordering in bulk.

Similarly, Elizabeth Pector MD, a Naperville, Illinois, solo family practitioner who shares space and staff with another doctor, says the two practices buy vaccines through a cooperative operated by CCPA Purchasing Partners. Pector estimates that ordering through CCPA saves the practices about $7,000 annually.

When Moore joined Physicians to Women, she winnowed the number of vendors the practice uses from eight to three, then asked each one for bids on the range of supplies the practice uses. This information helped her to negotiate prices even further.

"Generally, suppliers will come to terms with you because they want the whole package," she says.

Providence Family Medicine, a two-physician practice in Waco, Texas, has used Physician Sales and Service as its primary vendor since opening in 1999. The relationship began when one partner, Tim Martindale, MD, met a PSS representative during his residency. But the practice also periodically gets quotes from medical supply giant McKesson Corp. "We've found if you have just one vendor, they will raise prices gradually and you never know it," Martindale says. "So we'll say to our PSS rep, 'We can get that item better at McKesson, and he'll come back and say, 'We're a little overpriced on that, so we'll lower your price.'"

As for finding a knowledgeable and reliable vendor, consultants and doctors alike recommend word of mouth.

"Find out who your colleagues in the community are using," Dunn suggests. "When you go to meetings of your specialty organizations, talk to people there about who they use. Often you'll find colleagues have experienced good and bad vendors, and they can share that information with you."

Specialty listservs are also good sources of information, Dunn points out.