We cannot manage the cost until we can manage the system

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<ul><li><p>DECEMBER 1994, VOL 60, NO 6 - We cannot </p><p>manage the cost until we can manage the system </p><p>ealth care reform has been on the front page of every major newspaper, magazine, period- </p><p>ical, and journal in recent months. In this era of change and uncer- tainty regarding reimbursement for services, health care profes- sionals are striving to reduce expenses while improving quali- ty. We are challenged to deliver more acute care using higher stan- dards of nursing care but fewer resources. To be competitive, hospitals need to use resources productively to deliver quality services in the shortest possible time and at the lowest cost. </p><p>As we enter this new age of health care, managers and providers must become proactive rather than remain reactive partic- ipants. With more acutely ill patients and shrinking monetary resources, we must explore every available avenue to decrease expenses. We must examine every aspect of our daily work lives-not only the cost of sup- plies, but the quantities in our inventories, duplication and appli- cation of supplies, staffiig pro- ductivity and efficiency, and use of other resources (eg, space). </p><p>ORGANIZA TIONAL STRATEGIES </p><p>a Japanese form of self-defense) are taught not to resist an attack- ing force; they learn to blend their power with an attackers force and thus combine energies for their own advantages. Health care professionals need to embrace this philosophy and use </p><p>People who practice aikido (ie, </p><p>it to facilitate the transition into a new frontier in health care. </p><p>To accomplish this monumen- tal task, we are challenged to enter into partnerships and create open lines of communication with our peers, physicians, vendors, materiels managers, and others (eg, laboratory, radiology, envi- ronmental services, maintenance personnel). If we all pool our resources and energies to become more creative and innovative, we can reach our common goal- quality, cost-effective health care. </p><p>In 1993, acute care hospitals spent $19.3 billion on medical surgical supplies. The $18.6 bil- lion spent in 1992 was a 9% increase over the previous year.2 </p><p>Health care costs cannot con- tinue to increase at this pace. We need to scrutinize every action at the grassroots level in hospitals and outpatient surgery units. We need to create a vision of the future of health care and imple- ment the necessary actions to carry us through the transition. </p><p>The first step in creating this vision is to identify practices that </p><p>MARQUITA P. JOHNSON- BAILEY, RN, BSN, CNOR, is the administra- tive director of nursing, surgery, St Anthony Hos- pital, Oklahoma </p><p>City. She also is president of Dynamic Visions: Perioperative Consultation and Education, Okla- homa City. </p><p>will provide the most savings in the shortest amount of time. A 1992 survey of hospitals identi- fied the most promising options for savings. Of the hospitals sur- veyed, 21 % identified the surgery department as offering the great- est opportunity for savings. Sixty- five percent of the hospitals sur- veyed identified the best savings opportunity as unofficial invento- ry (ie, supplies that are hidden away for a rainy day). Stan- dardization of products and sup- plies was the second most likely area for cost savings. </p><p>INVENTORY CONTROL </p><p>directly affect inventory. Many nurses have learned from past experience to keep an unofficial inventory of supplies to make sure those items are available at crucial times. Such actions usual- ly result in increased inventory. The key to controlling unofficial inventory is to develop and imple- ment systems that adequately meet the fluctuations in supply and demand. This may be easy to describe but difficult to imple- ment. A centrally located supply storage area with established par levels is one way to approach this problem. Identifying one or two people to be responsible for con- sistently reordering supplies will ensure that supplies are available when needed. </p><p>Alternative PmdUCtS. Another approach to ensuring availability of supplies is to identify accept- able, alternative products and/or </p><p>Health care providers actions </p><p>1002 AORN JOURNAL </p></li><li><p>DECEMBER 1994, VOL 60, NO 6 </p><p>alternative vendors for each prod- uct. Tracking and documenting product consumption can identify peak usage times, which will enable those responsible to increase inventory of supplies for high-usage times. A perpetual inventory system involves reordering supplies as they are used. Another method of proac- tively planning for high-usage periods includes reviewing the surgery schedule in advance to identify special needs or increased need for particular supplies. </p><p>A typical hospital may have more than half a million dollars allocated to surgical inventory, representing 4,000 to 6,000 differ- ent product^.^ The cost of supplies cannot be managed until the inventory system is controlled. Forming partnerships with materiels management personnel is essential because of the multi- faceted aspects of inventory con- trol. Health care providers need to understand cost/benefit analysis to be an integral part of the invento- ry control process. </p><p>The costbenefit analysis is crucial because the OR might use two or three times the number of a particular item to meet the patients needs. For example, a two-ply 4- x 4-inch dressing may be adequate for use on a patient care unit. The OR, however, may require three or four types of dressings. A solution may be to purchase four- or six-ply dress- ings for hospital-wide use if the OR uses the most dressings. Another example is 72-inch suc- tion tubing that is adequate for general hospital use but is not long enough for use in the OR. To compromise, the OR staff mem- bers could use two 72-inch tubes and a connector to get the required length. </p><p>Standardization. Product stan- dardization committees are bene- ficial to inventory control if they include representatives from all areas of the hospital (eg, nurses, surgeons, pharmacists, radiology personnel, anesthesia personnel). </p><p>Standardization committees are beneficial if they </p><p>include representa- tives from all areas </p><p>of the hospital. </p><p>Perioperative personnel can form their own product standardization committees within the OR to stan- dardize and reduce OR supply inventories. </p><p>Hospital and nursing staff members should form partner- ships with physicians if product standardization committees are to function and reach the desired outcome-reducing inventory without compromising patient care. Involving surgeons in com- parisons of product quality and cost is important when consider- ing product replacement. Nurses need to learn to negotiate with physicians about supply needs (Table 1). </p><p>Materiels management. The presence of a materiels manager in the surgical suite is becoming more important. Most OR man- agers, however, are reluctant to relinquish control of the OR inventory to outsiders (eg, materiels management person- nel). Because of the complexities </p><p>of OR supply and demand issues, perioperative nurses informally function in this role in some hos- pitals. </p><p>Assigning one person to this materiels management role can be instrumental in inventory reduc- tion, which may be achieved through multiple interventions: </p><p>more frequent ordering of sup- plies to reduce quantities on hand, identification of product dupli- cation, consistent ordering methods, more timely follow-up on back orders, development of alternative products or distributors in the event of back orders, and fewer purchase orders. </p><p>optimum- inventory levels also can be established and monitored more easily by one person. </p><p>Stockless inventory is another method used to reduce inventory. This program is designed to deliv- er supplies from the distributor directly to the OR on a daily basis. This system requires an automated inventory system that interfaces with the materiels man- agement system, which is linked to the distrib~tor.~ </p><p>Just-in-time delivery systems have been used in various forms for several years. With this type of program, a hospital keeps its inventory to a minimum by receiving five deliveries a week from a primary vendor. This saves labor and streamlines the hospi- tals purchasing and accounts payable functions. </p><p>Implementation of a case cart system can simplify OR materiels management because it shifts the majority of the inventory to the central supply department. To implement an effective case cart </p><p>Alternative inventory systems. </p><p>1004 AORN JOURNAL </p></li><li><p>DECEMBER 1994, VOL 60, NO 6 </p><p>Develop negotiation strategies well in advance. </p><p>Clearly define your goals (eg, What is to be accomplished? What are you willing to accept?). </p><p>Consider the physicians goals (eg, What do they want to accomplish? What do you believe they might expect?). Consider how the negotiation might best be accomplished (eg, face-to-face, product evaluation, assistance from product representative, perioperative staff involvement, clinical studies). </p><p>Obtain objective criteria to support your position (eg, Is this item comparable? Will it alter surgeonstechniques? Will it have a negative impact on patient outcome? How does the cost compare? Is the product readily available?). </p><p>Decide in advance what concessians may be appropriate. </p><p>Consider how you will respond to anger, aggression, indifference, time constraints, refusal to participate, and the argument that the original product is needed. </p><p>If physicians strongly believe that an alternative product is unacceptable, ask them what will meet their needs and if they will be willing to evaluate other products that may meet those criteria and save money as well. </p><p>Consider quality of care and ease of use. </p><p>NOTE </p><p>Healthcare Materiel Management 12 (Februaly 1994) 36-38. 1 . T F Guernsey, K Klare, Choose your moves in negotiating, Journal of </p><p>system, automation of the OR scheduling system, surgeons preference cards, and inventory is desirable. Putting the OR invento- ry on an automated perpetual inventory system provides a mechanism to coordinate ordering more closely with the surgery departments usage patterns and offers 24-hour replenishing. </p><p>less expensive to conduct; allows extra space in the surgery department to more effectively store items; frees clinical employees to focus exclusively on clinical functions; and provides information on prod- uct use, pricing, and fill rates6 Purchasing process. Another </p><p>Automated perpetual inventory way to reduce supply costs is to evaluate the purchasing process. According to one industry market- ing manager, the cost of purchas- ing a product, including the deci- </p><p>also provides five indirect bene- fits when the system is complete- ly installed and operational. Such an inventory </p><p>provides products in a timely manner; physically reorganizes stock, which allows periodic invento- ries to be more accurate and </p><p>sion-making process, preparing the purchase order, and verifying and paying the invoice, averages $35 to $85. In some institutions, procure- ment process costs may reach an </p><p>estimated $500 per item. In other words, the cost of procuring a $20 item could reach $55 to $500. </p><p>Procurement costs can be cut by as much as 50% by using sin- gle sourcing (ie, using one ven- dor) and blanket purchase orders. Simply reducing the number of purchase orders required also saves money. Significant reduc- tions can be realized by using electronic ordering and invoicing. </p><p>Hospitals may benefit from entering into buying partnerships with other health care institutions or other group purchasing organi- zations. Such affiliations provide greater buying and negotiating power and reduce costs. </p><p>Another way to reduce inven- tory is to aggressively use con- signment of implantable devices, especially in orthopedic and car- diovascular specialties. Some companies no longer charge loan- er fees for instrumentation. Many distributors will absorb the expense of express shipping. </p><p>unused, discarded supplies add many dollars to OR budgets and patients bills; such medical waste also is an environmental concern. Although custom packs signifi- cantly reduce the time required to gather and open supplies for a surgical procedure, they also may represent hidden costs. To be cost-effective, custom packs should be used in their entirety at least 90% of the time.8 </p><p>a major portion of OR budgets and patients bills. Many manu- facturers now focus on develop- ing reusable items to replace dis- posable products. Nurses should seek physician participation when selecting reusables to replace disposable items. Chang- ing some disposables to </p><p>Hidden costs. Hidden costs of </p><p>Disposable supplies constitute </p><p>100.5 AORN JOURNAL </p></li><li><p>DECEMBER 1994, VOL 60, NO 6 </p><p>reusables (eg, trocars, endo- shears, staplers, endoscopy clips) may affect physicians tech- niques. </p><p>Contracl negotiation. Nurses should learn to negotiate cost- effective contracts. Some impor- tant aspects of contract negotiation are defining m what the hospital wants in a </p><p>warranty, m who is responsible for mainte- </p><p>nance duties and fees, and BJ how upgrades will be handled </p><p>if needed in the future. Contractual issues also may involve testing, implementation, and training? </p><p>CAPITAL EQUIPMENT Capital equipment acquisition </p><p>may account for 10% of a hospi- tals annual expenditures. l o Whereas health care purchasing previously emphasized price, the focus of the 1990s is on quality, longevity, and the purchasers needs. Suppliers must work to ensure that product updates made during a products life cycle can be added to existing equipment. Health care providers should develop criteria-based lists of objectives from which to evaluate whether equipment will be suit- able for current and future needs. </p><p>The distinction between price and cost is crucial. The purchase price is a hospitals initial finan- cial outlay to purchase equipment. Additional costs include any physical plant remodeling (eg, electrical wiring, telephone lines, plumbing), time spent learning how to use and maintain the equipment, factors regarding the equipments durability, and sup- plies required to operate the equipment. I I </p><p>Another method of reducing capital expenditures is group pur- </p><p>chasing of like items. For exam- ple, if two or three departments of a hospital purchase defibrillators, the hospital may receive a dis- count if all the defibrillators are purchased from the same vendor at the same time. </p><p>Staff members know what </p><p>will be most efficacious in the </p><p>daily functioning of </p><p>PERSONNEL AND THE PHYSICAL PLANT </p><p>Use and efficiency of person- nel and the physical plant should be evaluated as well. Personnel efficiency can be addressed through effective use of profes- sional staff members. The roles of nurses should be clearly defined. </p><p>Are nurses performing nursing functions, or are they perform- ing housekeeping tasks? Are nurses stocking supplies, transporting patients, or dis- posing of waste? </p><p>Nurses can better use their time delivering patient care, which includes complete and accurate documentation. </p><p>cal plant may identify ways to facilitate nursing care delivery through optimum use...</p></li></ul>