On Healthcare Inventory Management

Understanding Fundamental Principles

By Staff Reporters

www.HealthcareFinancials.com

According to industry inventory management expert Mr. David Piasecki, healthcare inventory is a term that describes medical items used in the delivery of healthcare services or for patient use and resale. Much like Durable Medical Equipment, a certain safety margin of stock should always be available. Inventory ranges from normal administrative office supplies to highly specialized chemicals and reagents used in the clinical laboratory. It 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.

Historical Review

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.

Consulting Firms

Dunn and Bradstreet, the supply chain management – consulting firm and others, do 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.HOFMS

www.HealthcareFinancials.com

The main problem with traditional ITR, similar analyses such as AI and ICP, 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. This occurs because sources of profit or loss are not recognized in the traditional inventory cost accounting equation:

Assessment

Cost of goods sold = beginning inventory + net purchases – ending inventory

Conclusion

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3 Responses

  1. Excellent post on medical inventory management. At least inflation rates for healthcare supplies should remain unchanged through 2010.

    http://www.healthcarefinancenews.com/news/inflation-rates-healthcare-supplies-remain-stable-through-2010

    Jeff

    Like

  2. eHRs and Supply Chain Management

    Did you know that electronic health records, as defined by the standards for “meaningful use,” are far less than comprehensive than originally thought? Mental health providers, for example, with the exception of psychiatrists, aren’t eligible for federal subsidies. Dental records aren’t required.

    Letter to David Blumenthal MD: http://www.higpa.org/assets/1/AssetManager/HIT%20Press%20Release%207.21.10.pdf

    And now, two organizations say federal officials should consider integrating two standards from the healthcare supply chain into eHRs and supply-chain management systems as an additional safeguard against medical errors.

    http://www.healthdatamanagement.com/news/supply-chain-standards-integration-ehr-onc-40668-1.html

    Dr. David E. Marcinko MBA
    [Editor-in-Chief]
    http://www.HealthcareFinancials.com

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  3. 88% of Hospitals are Building Medication Stockpiles

    Premier recently released survey results on hospitals and health systems building stockpiles of medications. Here are some key findings from the report:

    • 88% of hospitals are stockpiling medications needed to treat COVID-19 patients.
    • Half of hospitals are building a safety stock of at least a month.
    • 1 in 4 are building a medication stockpile of at least two months.
    • 92% are building a safety stock of sedatives like midazolam and propofol.
    • 88% are stockpiling controlled substances that include fentanyl and morphine.

    Source: Premier, July 8, 2020

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