How to cut costs through careful shopping
Whether hunting for parts for the '65 Mustang he's rebuilding or comparing prices on sharps containers, Thomas Gennosa is at home on the Web. The solo family physician in Robersonville, N.C., estimates his surfing saves 50 percent on some purchases for his office.
By contrast, Gillian Chartier, LPN, uses an old fax machine to place orders for her two family practice physicians in Amherst, Mass. But she, too, knows how to drive a hard bargain with her medical and office suppliers. She negotiates with vendor representatives and even checks prices with another nurse in a neighboring practice.
Gennosa and Chartier have learned it pays to be a savvy buyer. As Gennosa puts it: "It's like buying a car. There's a sucker's price and an educated consumer's price."
Admittedly, practice managers are often too overwhelmed to focus on the cost-saving opportunities in their purchasing, says Ken Hertz, president of KTH Consulting of Alexandria, La., and a consultant with the Medical Group Management Association (MGMA).
But getting a good deal on medical and office supplies can have a sizeable impact on a practice's finances. MGMA estimates that medical, office, and administrative costs together can top 10 percent of an office's operating expenses.
"One of the things you find with offices is there are so many things to occupy their time, with regulations, declining reimbursements, human resource issues, etc.," says Hertz. "A lot of times medical groups look at office supplies, even magazine subscriptions, and they will say, 'It's just a little amount of money. We don't need to worry about it.' But if you believe the adage that a penny saved is a penny earned, [purchasing] really is an area that is worth looking into. It is an area that is controllable."
Inventory a good start
There are some quick, simple things you can do to begin saving money on purchasing, without having a broadband Internet connection or computer expertise.
"One of the most basic ... is to keep an inventory of supplies on hand and have a good understanding of your utilization patterns," says Hertz. Practices that fail to do this "often order too much of some item or have no idea what they really need. You can go into the supply closets in these practices, and see literally thousands of dollars of supplies sitting on the shelves."
Instead, examine your utilization patterns and maintain comfortable, but not excessive, supplies. You don't want to put "bottom-line dollars on the shelves," says Hertz. In addition, "set up a purchasing system where someone has centralized authority over what is going on. It sounds simple but a lot of offices don't do this."
Hertz suspects some of the excessive or ill-advised ordering stems from pressure exerted by sales reps schmoozing with staff. He advises disallowing this entirely, or at least keeping it to a minimum by seeing representatives by appointment only -- and then only to discuss items that the office inventory indicates are really needed.
"If a sales rep comes in and talks to a nurse who is dealing with lab reports, referrals, authorizations ... she doesn't have time to negotiate," Hertz says, noting that negotiation and comparison shopping are the keys to saving. "One thing offices need to learn to do is price shop. And they need to breathe heavy and lean on suppliers and vendors, and say, 'I need your best deal.'"
Physician as bookkeeper
Gennosa, too, is a big believer in shopping around.
"I try to pit one supplier against another using Internet research," he says. "I get my price from my supplier and then I go shopping on the Web. If I find a better price I go back to my guy and I use that lower price as leverage. Most times they can match the price."
Gennosa purchases medical supplies almost exclusively from one supplier, and he has developed a relationship with his account representative. He also buys in volume for better pricing -- items he knows he will need in the next six months.
In addition, Gennosa has made purchases on eBay. "I have found a lot of steals on eBay, not necessarily drugs and pharmaceuticals, but things like tongue depressors and sharps containers." He was able to save two-thirds on sharps containers and even got a $2,000 EKG machine for only $1,200.
Gennosa's somewhat maverick approach to equipping and supplying his office is in line with his outlook on his practice in general: he's the boss. "I have structured my office so that I am not choking on patients, so that I can provide excellent care, enjoy what I am doing and not burn out. I see about 20 patients a day. I have a relatively small staff," he says.
He also performs repairs around the office and acts as his own bookkeeper. "It helps you keep a better perspective on things. I guarantee you, most doctors don't have a clue what anything costs."
The most important strategy in saving on expenses is to know where to concentrate your efforts, says Gennosa. Offices should try to get the best deal on items that are pure cost, rather than worrying much about the cost of those that are vital in performing a lucrative service.
Chartier, the LPN in the Amherst practice, honed her buying skills during her 20 years in healthcare. She typically works with one or two vendors only; if she thinks she can get a better price on products she needs, Chartier sometimes places a small order with a new vendor to try them out.
"We comparison shop constantly," says Katherine J. Atkinson, one of the physicians in the Amherst practice.
Chartier keeps a list of her common purchases and checks prices for those items against costs paid by a nurse in a practice next door. (The offices also share some equipment, like an EKG machine). She also puts her foot down with pushy sales reps, as Hertz suggests. Chartier believes sales reps should be "accessible for questions on new products, or for more information," but that's it.
"Being in a clinical setting, we can't be contacted at whim," Chartier says. "From time to time [a representative] will call and want to talk to the person who is ordering. They'll say, 'Do you need anything?' If I needed it I would be ordering it."
She places orders about every other week because the office does not have much storage, which means she also steers clear of vendors that will offer discounts only for bulk orders. Chartier doesn't accept catalogue prices as final, and will call and try to negotiate a better deal.
As with Gennosa, Chartier's thrifty approach to purchasing is echoed in other aspects of the practice. For example, the physicians bought furniture and toys for the office from yard sales, and rather than buying gowns, one of the nurses made them herself.
Cutting vendors, costs
Brian McGinnis, director of clinic operations for CaroMont Family Medicine in Gastonia, N.C., knows what a difference good purchasing strategies make to an organization's bottom line.
Two years ago McGinnis oversaw an effort to have the seven clinics under his leadership pare their medical and office expenses. The clinics, a subsidiary of Gaston Memorial Hospital, employ 100, including 14 physicians and six midlevel providers. Paramount was whittling down the number of vendors, which at the start of McGinnis' campaign topped 125. Medical supply vendors numbered about 12, while the balance were office suppliers, janitorial services, telephone services, and others.
"I found reducing the number of vendors automatically reduces expenses. It is almost counterintuitive," he says.
McGinnis wanted the clinics to reduce their medical vendors to one, if possible, and work with that vendor to "get a good price." Getting the lowest possible price is not as important, he believes, as striking a balance between quality, price, and number of vendors. What works best, in his view, is "a relationship with a vendor or supplier where both parties can work together to reach common solutions -- toward better sales for the vendor and competitive prices for the clinic."
Ultimately the number of medical vendors dropped to three, and office and other suppliers were cut to 60, resulting in an impressive 15 percent reduction in expenses, McGinnis says.
"The clinic that reduced its vendors [the most] saw a decrease of $10,000 a month," he says. LuAnn Tojdowski is the site coordinator of that clinic, in Lake Wylie, S.C. Clinical staff include two physicians and a nurse practitioner.
Before purchasing was tightened up, the function was somewhat chaotic, similar to that of other offices. "We were ordering from several different vendors, more or less whomever we could get supplies from the fastest," Tojdowski recalls. "It got a little crazy, and started running into a lot of money."
The office's new purchaser "takes the time to get the best price, and there are only two major vendors she sticks with."
How an office pays for supplies can also produce savings. Gennosa, for example, uses a MasterCard issued by his largest supplier that gives him 2 percent off his purchases at the end of each year. "I probably spend $3,000 a month on supplies, and that's $720 back. It's a way of exploiting a [vendor] relationship to get cash."
It also pays to look for vendors that offer a discount to members of the American Medical Association and other medical and professional associations.
Gennosa and others also discourage the purchase of office supplies from medical supply companies because these items are usually more costly when purchased this way. But don't forget local stores, either; there are times when the shop down the street has the best price.
"Sometimes it is cheaper to just go down to the Wal-Mart or Fred's to buy something," Tojdowski says. "I needed some extra [electrical] strip outlets. It was cheaper getting it from Fred's than ordering it. I priced them in the book and then I stopped in there" and found a better price.
Theresa Defino, an editor for Physicians Practice, has 15 years' experience covering economic, legislative, and clinical aspects of healthcare issues. She has written for WebMD and edited such publications as Managed Care Week, Medicare and Managed Care Strategies, and Practical Guidance on HIPAA and E-Health for Physicians Practice. She can be reached at firstname.lastname@example.org.
This article originally appeared in the January 2005 issue of Physicians Practice.