AHRMM Definition of Healthcare Supply Expense Marks First Step toward Developing National Benchmarking Study

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1 Press Contact: Sarah Oaks (312) Press Contact: Steve Rauchenecker (800) , extension 321 AHRMM Definition of Healthcare Supply Expense Marks First Step toward Developing National Benchmarking Study CHICAGO October 12, 2005 The Association for Healthcare Resource & Materials Management (AHRMM), with the support of the Healthcare Financial Management Association (HFMA), recently developed a definition for supply expense in healthcare organizations. A standard definition will help hospitals and other healthcare organizations compare their supply costs to others in the field and look for ways to improve the care they provide to the communities they serve. AHRMM s Benchmarking Task Force, including a representative from HFMA, has been working since January of 2005 on Phase I of its benchmarking project to provide valuable information to the entire field. The newly crafted definition of supply expense is: The net cost of all tangible items that are expensed including freight, standard distribution costs, and sales and use tax minus rebates. This would exclude labor, labor related expenses, and services as well as some tangible items that are frequently provided as part of service costs. The definition is accompanied by a list of items identified by AHRMM and HFMA to be included in supply expense reporting. The list is posted on both organizations Web sites and also denotes items that should not be included in supply expense reporting. Creating a standard to consistently identify categories and measurements of supplies and supply-related expenses will help AHRMM prepare a much needed supply expense benchmarking tool for the healthcare field, said Deborah Sprindzunas, AHRMM s executive director. AHRMM s role as a leading authority in healthcare materials management makes it a natural fit to conduct a national benchmarking study. Richard L. Clarke, DHA, FHFMA, president and chief executive officer of HFMA stated that cost containment is vital to the overall financial health of hospitals. With hospitals facing increasing pressure on their margins, control of supplies and supply-related expenses is vital to any successful healthcare financial strategy. HFMA is pleased to represent its members, and collaborate with AHRMM in helping to define this important standard. Hospitals and healthcare institutions are encouraged to use these documents as a tool to ensure accurate comparisons of similar organizations and track trends in supply expense going forward. This effort has laid the groundwork for a national supply expense benchmarking study for the 1

2 field, and as it moves into the next phases will require the active participation of all AHRMM members, and assistance from the field at large. About AHRMM The Association for Healthcare Resource & Materials Management is the leading national association for executives in the healthcare resource and materials management profession. A personal membership group of the American Hospital Association, AHRMM serves more than 3,400 active members. Founded in 1962, AHRMM prepares its members to contribute to the field and advance the profession through networking, education, recognition, and advocacy. About HFMA HFMA is the nation's leading membership organization for more than 34,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities; information on key issues affecting healthcare financial managers; resources, such as technical data, checklists and research reports; and networking opportunities-all of which provide our members with the practical tools and ideas they need to ensure career and organizational successes. For more information, visit HFMA's website at 2

3 Supply Expense Definition The net cost of all tangible items that are expensed including freight, standard distribution cost, and sales and use tax minus rebates. This would exclude labor, labor related expenses, and services as well as some tangible items that are frequently provided as part of service costs. Items to be Included in Supply Costs Surgical supplies including Implantable and prosthetic devices including Intra-ocular lenses Orthopedic implants Pacemakers and AICDs Organs (but not specifically listed) Anesthetic materials Sutures, endomechanicals, and suture needles/wound closure devices Surgical packs, kits and minor trays Replacement instruments both disposable and non-disposable (unless capital) General medical supplies including Bandages, gauze, and dressings PT, OT, RT supplies IV Sets Needles, syringes Paper products (EKG paper, dividers, etc.) Drugs/pharmaceuticals including IV solutions Contrast media Radiopharmaceuticals Lab supplies including Phlebotomy supplies Chemicals, reagents, media Blood and blood products Supply portion (only) of any rental/lease/reagent agreement Oxygen and related medical gases Radiologic films and chemicals Dialysis supplies and fluids Linens, patient apparel, and hospital acquired scrubs and uniforms Dietary products Patient and cafeteria food Nutritional supplements Dish & flatware, disposable and nondisposable Housekeeping/cleaning supplies Cleaning products, floor finishes Paper goods, toilet tissue, paper towels etc. Office type supplies including Computer Supplies Computer software (unless capital) 3

4 Copy/printer paper Inks and toners Forms (internally or externally produced) Storage costs for supplier warehoused forms Freight associated with any supply item Standard distribution fees not including additional costs for stockless or other value-added services Supply portion of outsourced contracts including Dietary Environmental Services Supply portion of any equipment rental or lease Sales tax Rebates (deducted from supply cost) Manufacturer Rebates Distributer rebates Dividends from Purchasing Groups Not Included In Supply Costs Supplies for vending operations Supply costs used with an in-house laundry Routine maintenance items (not for new construction or significant remodeling) Paint Plumbing Lights Filters Grounds maintenance items including Plants Vehicle consumables (gas/oil/parts) Non-supply part of outsourced services Supply portion of outsourced biomedical contracts Supply cost associated with outsourced copy center contracts Capital equipment Capital portion of any supply agreements Instrument costs incurred in a service start-up Construction/renovation projects Service agreements Maintenance agreements Repair parts including Medical equipment Non-medical equipment That portion of maintenance agreements for repair parts Other purchased services Regulated medical waste & municipal waste Marketing materials (brochures, give-aways) Rentals and capital leases Expenses related to operating leases Reference lab costs Laundry (except linen replacement costs if included) 4

5 Depreciation and amortization Utilities including fuel for internally generated utilities (oil) Telecommunications, pagers, cell phones, answering services Travel, education training/education Dues & subscriptions Recruiting, promotion, marketing Interest expense Taxes (other than sales taxes), licenses, regulatory fees Outside contractor fees, consulting fees, temp help Bond costs Professional fees/services A/R collections services Wages, salaries, benefits Postage Provision for bad debts/doubtful collections Physician fees Insurance premium and payments Messenger Service 5