Monitoring expenses

Typically, 35% of a long-term care facility’s operating costs are nonlabor; however, since the average facility size is 100 beds, it becomes cost prohibitive to implement centralized purchasing systems to monitor and control supplies and their expenses.

Washcloth caper

Several years ago a facility in Niagara Falls, New York, noticed that its linen expenses had increased substantially. Blame was first put on the linen supplier for increasing prices, but this was not the case. Upon investigation, it was discovered that the clean linen cart was in a hallway that was accessible to everyone instead of being secured in a room. Once the clean linen cart was moved from the hallway, over a course of the next several months, the linen bill returned to normal but still no one knew the reason for the increase in linen bills. It was assumed someone had been stealing a lot of washcloths because that is what was constantly being reordered.

By chance, several months later a nurse discovered an exorbitant amount of washcloths in one of the resident’s rooms. We learned that this resident would go by the clean linen cart in her wheelchair, swipe the washcloths, and take them back to her room. Once in her room, she sewed them together for her family and friends. They thought it was cute and never considered the cost to the facility.

If you are not monitoring your expenses and questioning them, your costs can increase and it has nothing to do with prices.

Milkman scam

In another situation, a dairy truck driver was caught, not by the nursing home, but by the police. He would deliver crates of milk into the cooler but had removed one or two containers of milk from the middle crates he wheeled in. Since no one monitored or counted what he was delivering, he got away with this for more than a year. He would perpetrate this scam at a number of different locations he delivered to and then would sell the milk that was supposed to have been delivered to his customers to a store for cash. This dairy truck driver made out and the store owner made out because he paid less than what he would have. The customers that lost were the ones that had not inspected and verified their deliveries. This is another example of where costs increased, but it had nothing to do with the prices paid.

Ken Donhauser

Other factors

Prices paid are, of course, very important but there are many other factors that weigh on the total costs spent by long-term healthcare facilities. Since most facilities are not of a size to have a person whose sole responsibility is purchasing, it is incumbent on the administration to educate all department managers about purchasing and supply usage.

Utilizing a purchase order system is a start and this can help prevent fraudulent orders as well as verify that the correct prices are being paid. There are many more components of a complete system that must be implemented and practiced. Here are a few suggestions:

  1. Understand inventory turnover. Know what turnover rate each department should try to achieve. Having too much inventory is just as bad as running out all the time.

  2. Inspect for damage and verify all deliveries.

  3. Consider a group purchasing program to help lower costs.

  4. Check prices and verify that you are receiving the correct contract prices. Use of a purchase order system is a must.

  5. Decide where brand names must be used and where it may be appropriate to use generics or house labels.

  6. Since the majority of purchases are from distributors, evaluate them and possible competitors every two years.

  7. Communicate with suppliers to let them know of any problems and learn from them ways to reduce costs such as increasing order size, taking fewer deliveries, closeout items, and specials they may have.

  8. Don’t be afraid to make changes.

  9. Be aware that product theft will cost your operations. Implement procedures and systems to reduce this risk.

  10. Technology can be a great tool and time-saver.

  11. Place orders electronically and use reports available to improve your operations.

  12. Food service, in many cases, is half of your nonlabor supply expenses.

  13. Use a scale to weigh appropriate products and understand what you are weighing.

  14. Understand how your distributor prices your account by “markup” or “margin.” There is a big difference in the prices you pay between a 10% markup vs. a 10% margin.

  15. On a regular basis, evaluate products by doing blind cuttings to verify that you are receiving the quality expected.

  16. Intake studies in food service are cumbersome but can help you understand what residents are not eating. This information, if used properly, will help to lower food and supplement costs by providing meals the residents enjoy.

  17. If using a manual tray card system, upgrade to an electronic version. At relatively little cost, this can improve operations substantially.

  18. Similar to the above, if the food service department is performing resident care functions manually, consider upgrading to an electronic system to manage and streamline all the resident care functions.

  19. Don’t allow distributors to substitute products without your permission.

  20. Don’t allow suppliers to make up and place orders on your behalf.

You are the best judge within your operation of what needs to be done. There are many opportunities for reducing expenses without reducing the quality of care provided to the residents. Purchasing and supply utilization costs should be a topic at every department manager meeting. It is amazing the different ideas that will come from within this group that can be used to improve your operation.

Kenneth R. Donhauser is CEO of PRIME Services, Inc., Williamsville, New York. PRIME Services is a supply cost management company focused on removing costs from the supply chain while improving operational efficiency and increasing cash flow. Mr. Donhauser can be reached at (800) 666-3344, ext. 112, or

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At a glance…

The price paid is only one factor of many that weigh-in on the total costs spent by long-term care facilities. The author gives 20 tips to help you make sure you’re getting what you pay for.

Long-Term Living 2009 August;58(8):36-37

Topics: Articles , Facility management , Finance