Achieving higher outpatient surgery center valuation and financial performance through benchmarking
Anchors. Sutures. Surgical gloves. These items may be small, but their impact on your bottom line can be big.
Medical and surgical expenses comprise nearly 30 percent of an ambulatory surgery center (ASC)’s total expenses, making them the second-biggest cost after staffing, according to a VMG Health study. But while finding opportunities to reduce staffing costs can be complex, lowering supply chain costs is often just a matter of knowing where to begin.
Benchmarking supply chain costs against industry standards often reveals room for improvement on this large line item. By right-sizing prices and supply levels, ASC owners can work to optimize their overall financial performance, boost profitability and make their facilities more marketable when it’s time to sell.
To optimize your supply chain, begin with a due diligence review that compares your overall costs with accepted standards. An advisor with an understanding of this market can guide you through the process.
While VMG Health found that the average ASC spends $1.4 million annually on medical and surgical expenses, or $347.82 per case, this figure can vary significantly based on your number of operating rooms, specialties and geography. For example, ASCs that specialize in orthopedics have particularly high medical and surgical supply costs, making up one-third or more of total operating expenses.
If your supply chain analysis uncovers any red flags, look for opportunities to reduce costs before pursuing a sale. With ASC valuation multiples currently in the high single digits, improving profitability can potentially earn you millions more in a transaction. Here are two places to start:
- Join a group purchasing organization.
Long a staple among hospitals, group purchasing organizations (GPOs) are gaining favor among ASCs looking to trim spending. GPOs leverage economies of scale and vendor relationships to provide preferred pricing and easier access to a variety of clinical and medical supplies. A 2014 Healthcare Supply Chain Association report stated that GPOs would save the U.S. healthcare industry a projected $864 billion from 2013 to 2022, or $55 billion annually.
When selecting a GPO, look for ones with a product mix that matches your high-volume specialties. Buying in bulk typically means increased savings, so it’s important to align the GPO’s offerings to your greatest needs.
In addition, read the fine print to see whether you can go outside the GPO to purchase specialty items that may be more affordable elsewhere. Regardless of where you source your supplies, comparison shop regularly to ensure you’re still getting the best prices.
- Right-size inventory.
Overstocking means tying up too much revenue in inventory and running the risk of expired supplies, while understocking certain clinical supplies could lead to a case cancellation—neither of which is good for your finances. Understanding and managing required supply levels is essential for smart spending.
First, ASCs should designate a staff member to oversee inventory operations. Often, this responsibility is spread among multiple roles, leading to duplicated efforts and unnecessary orders. Implementing inventory control software can also help streamline your ASC’s supply operations, with features such as automatic ordering and price reconciliation to uncover any unusual cost spikes.
While standardization of supplies can be a delicate subject among surgeons, designating standards for commodity items at a minimum can help reduce spending and required space for inventory. To minimize waste, use the supplies that expire the soonest first and save unopened items from custom packs, such as razor blades, whenever possible. In addition, evaluate the contents of custom packs and trays regularly. Over time, physicians may stop using certain components, and identifying what’s no longer needed can help your ASC save.
Working with an experienced partner to optimize your supply chain can help you position your ASC for increased profitability, both now and into the future. To learn more, please email us at firstname.lastname@example.org.
About Merritt Healthcare Advisors
Merritt Healthcare Advisors is the leading provider of M&A consultative services for healthcare organizations across the country. In an era of increased competition for patients, shifting market dynamics, declining reimbursements and a heightened emphasis on costly technology, Merritt Healthcare Advisors is the proven partner for physician and hospital leaders seeking to optimize their value. Given the recent dramatic change throughout healthcare in both national and local markets, hospitals, health systems and physicians navigate a complex landscape when it comes to buying or selling a healthcare organization. As the only M&A advisory organization with active clinical operations, we have an unmatched perspective when it comes to coordinating beneficial transactions within the highly complex healthcare industry. https://merrittadvisory.com/