Almost every hospital or IDN faces significant challenges in managing their operating room inventory, which can be traced to a simple concept: utilization. Utilization is simply a ratio of the $ value of clinical purchases BILLED to patients or insurance, compared to the $ value of total purchases. In most hospitals, this ratio is somewhere in the range of 40-60%. In some, it is as low as 20%. This means that for every $1 spent on clinical supplies, the hospital is only billing patients and insurance for 50 cents.
This seems like an incredible statistic….. how can this be? What is happening to all of the material that comes in through the receiving dock? How are these materials not not showing up on a patient bill after a surgery in the OR? Where does it go?
The answer can be found in the way that most hospitals handle material within their operating room. Every time there is an operation, there is a complex “setup procedure” that surgical techs and nurses need to complete. Every physician has their own preferences on what they need for the surgery, and it is a lot of work to have everything ready. Techs need to ensure that anything the surgeon might need during the operation is available, as they cannot go back and start fishing for it in the stock room.
Each doctor has their specific preferences that he or she insists on using for a specific procedure.. For instance, the physician started doing open heart surgeries 20 years ago, and their product preferences were captured on a “physician preference card”, that lists all the materials required for that procedure, which techs need to have ready prior to surgery, (typically done the day before in a “kit”). Although the card was “built” 20 years ago, it may not have been updated in some time.. A lot of products have been introduced that re more modern in 20 years, but the card has only added these items, and never purged the old ones.
The only success factor that a nurse working in the OR is assessed against is having the materials ready. They risk getting fired if they don’t have a material or part ready for the surgeon, when he or she requests it during surgery. So there is no incentive whatsoever for nurses to go in and eliminate obsolete items on the preference card. So they pick it along with all the other items, even though in many cases 50-75% of the parts are obsolete and will never be used. What happens to these parts? After the surgery, they are returned to the stock room.
Back in the stock room, it may take 4 minutes to clean and sterilize the part, put it back in its designated location, and record it. People working in the stock room are often short-staffed, and don’t have time to re-stock a ton of inventory from each day’s surgery. So guess what happens about 75% of the time? It gets tossed! Every day more than $10,000 of material is likely thrown out in the stock room. So parts may turn 1 – 2 times at most, which means that most of it is thrown away.
But wait – it gets worse! When the system recognizes that parts aren’t in their stocking location, it re-orders these same parts, which will never be used, and will again likely be thrown away! This cycle of waste is endless, and results in very low utilization rates.
What is the solution? In speaking with Marc Schessel from SC Worx, who I working with our MBA students on a healthcare analytics study this semester, the solution is to make the doctor preference card “dynamic”. Maarc notes that “once you order a part, you should have a centralized preference card which holds all of the consumables. Today, no one is incentivized to manage the preference card, and no one wants to take anything off it, as there is only a downside. You might get fired if a part isn’t available. So what we need to do is track these cards against the utilization of parts used on the card. Once we see items haven’t ever been used, we move them to the central inventory core, where they are still available, but not pulled every time. As utilization goes up, we can re-evaluate the central core after a year goes by, and verify that those parts were never used, and eliminate them from inventory once and for all. Because clinical staff will push back against not having everything on the card available, keeping some items in the central core, but not picking them every day, and not having to re-order them after every surgery, is a happy compromise.”
The student team will be working on this problem, working with several large hospitals, in order to document the preference card, and ensure it is aligned with inventory utilization. We look forward to seeing the outcome of this exciting project!