12 Part Series: MedCV Practice Financial Management – Insights & Tips You Need to Know About to Quickly Maximize Your Income
Tip 10 of 12 – Continued vigilance of supply costs and inventories will add dollars directly to your bottom line
Supply & Drug Costs:
a. Assessment: The level of supply and drug costs will vary by specialty so the assessment must be conducted at the specialty level. In addition, the supplies and drugs may be broken into two categories, consumables and goods sold. The method of assessing the opportunity on these two categories will vary.
For consumable supplies the value of the opportunity for savings is calculated by identifying your current cost to revenue for consumables and comparing it to a benchmark or target for this metric. As discussed in the Service brief, setting a target will typically involve identifying your total cost-to-revenue benchmark and then determining the portion of this benchmark that can be attributed to consumable supply costs.
For goods that are sold the direct revenues and costs for the goods should be carved out from other supplies. The opportunity is determined by setting a target for the margin between direct revenue and direct costs. Setting this target will require research to identify industry benchmarks. Optimizing the margins on goods sold requires a recurring review as both revenues and cost changes may occur that will result in a loss on these items.
Improvement Actions: Improvements on both consumables and goods sold are achieved by making sure you are paying the lowest purchase price available for each item. In order to effectively achieve this objective, you must first identify the minimum quality needs for each item.
Next you must evaluate pricing on a recurring basis. Improvements on both categories are also achieved through flawless inventory management. Elements of a flawless inventory management system include eliminating loses through shrinkage and product expiration as well as optimizing the balance between out of stock instances and minimizing holding costs. A third improvement opportunity is available for goods sold through increased revenue. The contract rates and revenue cycle management actions explained in the revenue section should be deployed on goods sold to realize this opportunity.
“Control your expenses better than your competition. This is where you can always find the competitive advantage.”Sam Walton
A third improvement opportunity is available for goods sold through increased revenue. The contract rates and revenue cycle management actions explained in the revenue section should be deployed on goods sold to realize this opportunity.
Like we like to remind our physician members at the end of each of these 12 part series, as a physician, if this sounds like a lot of work and maybe even has your “business anxiety level” up a few notches, you are not alone. The great news is that your role in this should just be to make sure it gets done and that those who are going to be responsible and accountable for this can explain and report details about what the plan looks like and its status to you.
Share this article with your practice manager, group administration, or hospital administration to make sure they are working on this or see what resources they have to get at this work. If they need help in getting started, they should consider connecting with John Rezen at Value Health. The key is to be able to have your baseline, you would expect your team to report to you the improvement(s) made and the results.
Stay tuned for final Part 12 of 12, Overhead costs-to-revenue the last of this series. Each of the 12 part series can be found here. Or simply contact John for the full 12 part series.
Again, it’s in your best financial interest to make sure each of these 12 Key Performance Indicators are optimized, you understand them, and take action, even if the action you take is to share the series and your new found business insight with your group or hospital administration.
Each of the 12 part “2-3 minute reads” in this Financial Improvement series provided by John Rezen, FACHE, MHA and your MedCV team can quickly add CASH to your bottom line just by having your practice “work smarter” for you. Even if you are not directly responsible for the management of your practice, knowing this information will help you make sure you are making the income you deserve.
As hospitals and medical groups emerge from the COVID- 19 economic shutdown, they will be faced with significant pressure to improve their financial performance. The following checklist of performance measures should help physician enterprises identify financial opportunities and accelerate their improvements. Below are the 12 topics, to read a previous segment, click on the name/link. The current segment is Blue and upcoming segments are Black.
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