AHRMM task force takes aim at supply expense
AHRMM task force takes aim at supply expense
Goal is to enable consistent calculation
The American Hospital Association’s Association for Healthcare Resource & Materials Management (AHRMM), with support from the Healthcare Financial Management Association (HFMA), has developed a standard definition for supply expense that health care organizations can use to compare their supply costs to others in the field and look for ways to improve the care they provide to their communities. AHRMM’s benchmarking task force considers this the first step toward providing industry benchmarks for supply expense. The definition is:
"The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor-related expenses, and services, as well as some tangible items that are frequently provided as part of service costs."
AHRMM also has identified the items that should and should not be included in supply expense reporting.
"This sector of the industry has had a difficult time with benchmarking, because there has been none except what emanates out of what HFMA says should be considered supplies," notes John T. Mateka, FAHRMM, MBA, vice president of supply chain resource management at the Medical College of Georgia, Inc., in Augusta, past president of AHRMM, and chair of the benchmarking task force. "So, we said, Let’s put a stake in the ground for purposes of clarifying the costs of medical supplies.’"
The definition, he continues, is a list of qualifying supply items called "medical supplies." "Essentially, this is what we consider supplies’ when we use terms such as supplies per adjusted patient day,’" he explains.
The lack of such a definition, he asserts, is what has stood in the way of true benchmarking in this area. "When we put out a benchmarking number, we all use similar ratios — supplies per adjusted patient day, supplies per adjusted patient day plus case mix adjusted," he notes. "Some people use adjusted discharges; some compare supplies as a percentage of net revenue and/or total operating expenses, but those variables are pretty standard in the industry. What we hope to do by this definition is to say, Let’s have a consistent calculation and tabulation."
Other experts in the field agree this is a good idea. "I think it would be a great idea," says Lindy Billingham, CPM, APT, director of materials at Texas Children’s Hospital in Houston. "It’s difficult to do, only because hospitals operate so differently, and their inclusion of what is under materials management and what is a supply expense is not always the same."
What benchmark will accomplish
Mateka hopes the new definition will lead to a more universal reading of hospital ledgers. "In the industry, most of these things are constructed on financials and ledgers that are already in place with budgets attached to them, with some supplies attached and some not," he notes.
"We hope over the next few years that the industry will reconstruct their general ledgers in their budgets so we [will be talking about the same things when] we talk about supply costs."
That will not be absolutely necessary to conduct benchmarking projects, he says. "You can pull the numbers you need out, but the task is difficult," he notes. "Some numbers may be in three or four different categories or cost lines. Many times, office supplies are reported in other’ expenses, and not as part of the supply costs matrix. Some people put housekeeping in separate categories, and so on."
The advantage of the new definition, he says, is "it now will allow us to appropriately start to compare some of our costs with hospitals of similar size and makeup. We can already find hospitals with the same bed size, with the same types of procedures we do, but what we can’t determine is what they call supplies and what they don’t. This will advantage us in saying, following the new standard, Please give us this report of these types of items.’ Then we’ll be able to do some true benchmarking."
Billingham agrees. "This will help you to see if you are doing a good job in your own facility, and if there is a best practice out there where someone is doing better," she says. "If they are, you could contact them and learn about it — or, justify to the executive level what it is you are doing and how well you are doing it."
Don’t forget consumption
It’s just as important when benchmarking supplies, say the experts, to look at consumption as well as expense. For example, they note, many supplies are contracted for with group purchasing organizations, so the prices are fairly well set.
"You do have to focus on usage," says Billingham. "Contracting is a big part of it, but if you utilize things that are not on contract, or utilize things and throw them away, you still will have high expenses if you can’t get your organization to agree that utilization is important."
"That’s one of the things we hope to include or exclude in this arena," adds Mateka. "You can outsource a program, and outsource the cost of related supplies. It’s important when you are benchmarking, if a lot of your supplies are outsourced or contracted, that you either get what that number is, or identify that it is being excluded."
Need More Information?
For more information, contact:
- John T. Mateka, FAHRMM, MBA, Vice President of Supply Chain Resource Management, The Medical College of Georgia, Inc., Augusta, GA. Phone: (706) 721-2149. E-mail: [email protected].
- Lindy Billingham, CPM, APT, Director of Materials, Texas Children’s Hospital, Houston, TX. (832) 824-2147.
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