Academic journal article Journal of Business and Behavior Sciences

Reducing Waste in the Operating Room through Inventory-Based Supply Chain Optimization

Academic journal article Journal of Business and Behavior Sciences

Reducing Waste in the Operating Room through Inventory-Based Supply Chain Optimization

Article excerpt


With the requirement for hospital operating rooms to run as lean and efficient as they can, surgeon preference cards must become an area of focus to assist in reducing operational costs. Depending on the size of the hospital, an operating room can spend millions of dollars on soft goods (disposable supplies), which could have a major effect on the operating room's operating margin, and the overall operating margin of the hospital. While efforts can be made to reduce periodic automatic replenishment (PAR) levels to minimize the stock on hand, if there is no change made to the supplies a surgeon requests for use on their cases, an operating room will not see a reduction in inventory.


According to Ely (2018), the average cost of OR time in the state of California ranged from $36 to $37 per minute. This data was pulled from the Office of Statewide Health Planning and Development (OSHPD) which mandates that all hospitals in the state of California report annual financial metrics. The mix of hospitals that made up this average included for profit (25.8%), not for profit (57.9%), and government owned (16.2%). Based on the data collected, it was determined that the OR expenses for the state of California had increased at a rate which surpassed that of the consumer price index (CPI) (Bureau of Labor Statistics, 2018) and the medical care index (one of the eight major groups in the CPI) for the period of 2004 to 2015 (Ely, 2018).

When breaking down the data further, it was identified that direct costs for OR time ranged from 55% to 59% of the total per minute cost, depending on whether the procedure was an inpatient or outpatient procedure. This results in direct costs accounting for $20 to $22 of the average $36 to $37 per minute, with $13 to $14 of those direct costs being attributed to wages and fringe benefits. Ely (2018) identified that $2.50 to $3.50 of the perminute cost was for non-chargeable supplies (soft goods).


While Texas Health Care Information Collection (THCIC) provides cost data for a patient's overall encounter in the state of Texas, determining what the average cost of OR time equates to is not easily determined. So, to consider what the impact of these costs are for surgical cases in the state of Texas, it is important to recognize that the average cost of medical care is 8% less than that of California (Segal, 2017). Looking at a Level 1Trauma Center in Texas, for the first six months of 2018, based on the aforementioned cost data, the medical center could be looking at a supply cost of $2.5M to $3.5M for their 1,077,742 minutes (Alpha Medical Center, 2018). If the numbers are annualized, the medical center would be experiencing $5.0M to $6.9M in unchargeable supply expenses.


Because a hospital's operating room is typically the second-largest holder of inventory in a hospital, it is crucial that processes are developed to streamline supply chain management. As much as a hospital can eliminate unnecessary supplies from its OR inventory, there will be no gains if surgeons keep requesting new items to be used in their cases. In the past, as Covidien (2011) points out, surgeons were in a great position to request their preferred products to be stocked in a hospital with which they had privileges. Before reimbursement transitioned to a quality vs quantity approach, hospitals were more willing to bargain with surgeons if it meant the surgeon would bring their caseload to that hospital. At that time, the more patients who were seen at the hospital, the greater the revenue generated.

Now, however, hospitals are reimbursed mainly on the quality of care which is provided - whether that be in a bundled payment, through capitation, shared risk, etc.; few payers today still use fee-for-service as their method of payment. Therefore, hospitals are no longer in a position to offer surgeons their preferred supplies even if they threaten to move their caseload elsewhere. …

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