SMH board working to reduce spending on supplies
Date posted: December 5, 2013
SHERIDAN — The Sheridan Memorial Hospital Board of Trustees heard a presentation Wednesday about how the hospital is working to reduce spending on supplies.
“As we go into the future, there’s not going to be more money coming into the system. Any way you look at it, there will probably be less coming in,” Chief Human Resources Officer Len Gross said following the presentation. “To survive into the future, we have to get leaner, we have to get less expensive, bring our overhead down and be competitive. If we can bring our costs down, that means we don’t have to raise our prices. If we bring our costs down, we’re better ready for surviving into the future.”
Gross said the hospital spends approximately 20 percent of its net revenue on supplies.
“For every dollar that comes in in net revenue, we spend 20 cents on supplies, so it’s a fairly large line item to go after. Within that 20 percent there are literally thousands of items that we use in the hospital each year to provide patient care,” Gross said.
Approximately $1 million per month is spent on supplies.
In March, a team of department heads began meeting to determine ways to cut spending on supplies. It set a goal of spending 18 percent of net revenue on supplies by Dec. 31, 2013. At this point, spending is at about 17.5 percent, Gross said, so they are on their way to meeting their goal.
The hospital hopes to be down to 16 percent by July 1, 2014, which is the start of a new fiscal year.
Chief Financial Officer Ed Johlman has said 14 percent of net revenue spent on supplies would be ideal.
The hospital is using a program called VHA to compare what it spends on supplies with 1,400 other hospitals’ expenditures. This enables the team to determine if it could be getting a lower price on items that are expensive or used in high quantities. With the data to back them up, they can call vendors and negotiate a better price, Gross said, citing one example with an expensive supply called bone cement, which is used in joint replacement procedures.
“It’s got antibiotics built into the cement so once the wound is sealed up, you’ve already got the antibiotics in there. It’s $309 for every 5-gram package, which is just a speck of this stuff,” Gross said.
The team went to the hospital’s vendor for bone cement and asked for a lower price based on their comparison data. The vendor changed the price right away, Gross said.
The hospital is also looking at its supply processes, examining price, need, supply amount and inventory tracking systems. If there are items that can be eliminated, the hospital will do so. If certain supplies are expiring too often, they will examine order amounts.
“All medical supplies out date,” Gross said. “You have to be very careful what quantities you have. You have to balance having enough, if somebody comes in and needs that, that you’ve got it, with not having too many, that the next level of technology makes it obsolete or it out dates.”
Gross said hospital staff always try to keep spending on supplies reasonable, but this is the first concentrated effort to examine supplies line item by line item to determine ways to cut costs.
If the hospital can get to 16 percent spending on supplies by July 2014, it will cut expenditures by approximately $2 million.
In other business:
• The board approved spending $10,000-$12,000 to design a system for emergency power upgrades. Facilities Director James Rader said adding another generator will add another layer of protection in the case of power outages.
Rader also noted that hospital roof replacement projects have been awarded to Big Horn Roofing out of Cody, whose bid came in under the estimated budget.
• The board approved its proposed meeting schedule for 2014. The December meeting for the SMH Board of Trustees has been rescheduled for Jan. 8, 2014.