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Understanding Traditional D.M.E. and Turn-Over Rates
[By Staff Reporters]
Healthcare inventory represents tangible medical items used in the delivery of healthcare services, or for patient use and resale, or durable medical equipment [DME]. A certain quantity of safety stock should always be available. Inventory ranges from normal administrative office supplies to highly specialized chemicals and reagents used in the clinical laboratory.
Capital Supplies
Inventory should be distinguished from capital supplies, such as major equipment, instruments, and other items that are not used up faster than inventory or related inventory wastes.
Understanding Inventory Turnover
Historically, asset utilization ratios provided information on how effectively the enterprise used its inventory assets to produce revenues, or deplete its cash. For example, the inventory turnover ratio (ITR) determines the total volume of inventory turnover (change) during a pre-determined accounting period (month or quarter). It is defined as cost of inventory purchased for the period, divided by average inventory (AI) at cost.
Supply Chain Management
Dunn and Bradstreet, the supply chain management and consulting company; does not provide exact comparatives for private healthcare ITR. Nonetheless, ITR is useful as an internal performance indicator of inventory turnover speed and cash flow enhancement. Currently however, for public hospitals, 60 – 75 days is estimated to be the average time for inventory turnover.
Assessment
The main problem with traditional ITR, similar analyses such as AI, and the usual inventory costing methods (e.g., last-in first-out, first-in first-out, specific identification, average costs), and even just-in-time inventory costing, is that they do not embrace supply chain inventory management models. This occurs because sources of profit or loss are not recognized in the traditional inventory cost accounting equation:
Cost of goods sold = beginning inventory + net purchases – ending inventory.
Conclusion
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Filed under: Accounting, iMBA, Inc., Practice Management, Recommended Books | Tagged: average inventory, cost accounting, DME, durable medical equipment, first-in, first-out, inventory costing, inventory costing methods, inventory turnover ratio, ITR, specific identification, supply chain management |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Thanks, for this interesting post. The topic is my accounting and managerial specialty; especially with new technologies like RFID, bar codes, wireless computers, etc. I will try to comment on these, and write more later.
Keep up the good work.
Alexander
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In a World of Throwaways
[Making a Dent in Medical Wastes]
Did you know that the health care industry has a garbage problem?
It’s not just that hospitals, doctors’ offices, clinics and other health facilities generate several billion pounds of garbage each year: buried in that mountain of trash are untold numbers of unused disposable medical devices as well as used but recyclable supplies and equipment, from excess syringes and gauze to surgical instruments.
Click to access In%20World%20of%20Throwaways,%20Making%20a%20Dent%20in%20Medical%20Waste%20-%20NYTimes.com.pdf
Elizabeth
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ACCREDITATION REQUIRED FOR ADVANCED DIAGNOSTIC IMAGING SUPPLIERS
Physicians, non-physician practitioners, and Independent Diagnostic Testing Facilities (“IDTF”) that perform certain advanced diagnostic imaging services (the “Suppliers”), such as magnetic resonance imaging (“MRI”), computed tomography (“CT”), and nuclear medicine imaging (including positron emission tomography) (collectively, the “ADI”) must be accredited by January 1, 2012 in order to submit claims to Medicare for the technical component of such ADI. This requirement does not apply to physicians or facilities that provide x-ray, fluoroscopy, ultrasound or diagnostic mammography in connection with the Mammography Quality Standards Act. In addition, hospitals, as well as physicians who interpret the diagnostic images but do not perform the technical component, are exempt from this requirement. An IDTF that uses an accredited mobile facility and bills for the technical component of the ADI services set forth above must also be accredited.
After January 1, 2012, Suppliers (as such term is defined above) of the technical component of ADI that seek to enroll in Medicare for the first time must be accredited by one of three organizations approved by CMS at the time of application in order to be accepted into the Medicare program. The three CMS-approved accrediting organizations are the Joint Commission, the American College of Radiology, and the Intersocietal Accreditation Commission (the “Approved Accrediting Organizations”). Suppliers who are currently enrolled in Medicare and accredited by one of the Approved Accrediting Organizations are not required to take any action. Rather, the Approved Accrediting Organization will alert Medicare directly.
Those Suppliers that seek to become accredited should contact one of the Approved Accrediting Organizations directly, as each organization has varying quality standards. Accordingly, it is advisable that Suppliers review the accreditation standards for each Approved Accrediting Organization in order to determine the accreditation process that best fits the Supplier’s business needs. A Supplier must secure accreditation for each modality that it supplies. The accreditation process may take up to five (5) months and may involve unannounced site visits by representatives from the Approved Accrediting Organization.
Source: Garfunkel Wild, P.C
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