ASCs equipped with a strategy to lower overall supply chain costs will fare well in the value-driven healthcare system and can use these resources in other areas, such as clinical delivery.
"Healthcare has seen unprecedented rates of change and as our environment continues to change, we must be agile enough to adapt if we are to succeed," said Jonathan Kernya, director of customer operations for OptiFreight® Logistics, a Cardinal Health Company. "And while this industry is changing, there is one constant: You must continue to do more with less resources."
During a recent webinar sponsored by Cardinal Health, Mr. Kernya detailed how ASCs can strengthen their bottom line through freight management. Gregory P. DeConciliis, founder and administrator of Waltham, Mass.-based Boston Out-Patient Surgical Suites, delved into why the orthopedic and pain management ASC implemented their freight management program and outlined the savings they accrued.
Addressing the hidden costs
A typical ASC receives 40 percent of their supplies through a contract with a distributor and the remaining 60 percent from a manufacturer, which is where surgery centers can accrue high fees if freight and associated costs aren't addressed. Due to the lean management at many ASCs, the staff member responsible for supply chain management may overlook freight fees that accumulate over time.
Manufacturers employ tactics to generate a profit from ASCs overlooking their freight such as:
• Combining "shipping and handling" into one line item
• Sending shipments automatically through a next day delivery
Mr. DeConciliis said he was primarily concerned with the hefty price tag on overnight shipping for add-ons and specialty items.
"This was the biggest point of frustration for someone in my shoes," he said. "If you have a $100 implant, you are paying $50 to have it shipped overnight."
Surgery centers that do not prioritize freight management are overpaying between 30 percent and 50 percent on their shipments.1 Surgery centers can save $17 per package on average when working with a freight management provider.1 Cardinal Health manages more than 17 million shipments for 21,000 U.S. healthcare facilities and has relationships with more than 7,000 suppliers. The company saves its customers more than $200 million annually through its freight management program.
Over a 12-month period, Boston Out-Patient Surgical Suites saved $17,000 through its freight management program.
How a freight management program works
The typical ASC supply purchase order process without a freight management program entails:
• Contacting the supplier with the purchase order
• Having a carrier pick up the shipment from the supplier and transport the shipment
• The carrier delivers the shipment to the ASC
The same process occurs when ASCs use a freight management provider, but the provider will remove the freight from the invoice and send it in a separate invoice. ASCs can then see their shipping costs and better control those costs as a result.
The freight manager collaborates with suppliers to confirm shipping on the ASC's specific carrier account, and suppliers are typically more responsive to freight management providers working on the surgery center's behalf. Because the freight management provider is driving the process, surgery centers can focus their efforts on providing optimal patient care.
"Shipping is never something we thought we could control," said Mr. DeConciliis. "Nobody likes change but this is very seamless. We signed the GPO contract, provided the list of suppliers and our provider worked with the suppliers and handled everything."
Considerations and best practices
Freight management companies are able to achieve savings through collaboration with suppliers, and then pass those savings onto ASCs. When selecting a freight management provider, an ASC should assess how many suppliers participate in the provider's program as an insufficient amount of suppliers working with a freight management provider will yield minimal freight savings for centers.
To maximize their program, surgery centers can engage in best practices including:
• Give your potential freight management provider a list of your top suppliers and invoices. Ask them for a freight analysis.
• Monitor ongoing performance via a data analytics tool set that measures freight costs for potential savings opportunities.
• Including a PO comment on every purchase order. This comment will remind suppliers to use the third-party account number for every shipment.
Employing a freight management program allows ASCs to save within a couple weeks without any changes to clinical care.
"In a time when cost pressures show no signs of diminishing, freight management is a simple way to realize significant annual savings," Mr. Kernya said.
References
1. Based on shipments through OptiFreight® Logistics during January 1, 2015 – December 31, 2015. Individual customer savings may vary.
To download a copy of the webinar, click here.
To view a recording of the webinar, click here.