Inventory Management For Hospital Administrators - A Guide

Healthcare facilities need tight inventory management processes to keep things running smoothly. A lack of medical supplies, which can range from diagnostic equipment, drugs, and raw materials, can result in costly outcomes - both in terms of patient care and financially.

Hospital inventory management is a complicated process with a multitude of facets; with its complexity increasing exponentially the more departments and physical locations are added to the equation.

As a provider of top-of-the-line medical instruments, MDF Instruments® is fully aware of the importance of inventory management in healthcare facilities. Therefore, in this article, we will break down the many processes involved in hospital inventory management and a list of best practices to ensure your healthcare facility is well stocked.

What is inventory management, in general?

Inventory management is the process of ordering and tracking stock as it arrives at the destination - in this case, hospitals. In other words, inventory management is how a given facility ensures it has the right products at the right time.

What Is Inventory Management for Healthcare?

Healthcare inventory management follows the same principles as regular inventory management, with a few key differences: it’s meant to keep track of a hospital’s inventory, orders, purchases, payments, and critical supplies (both permanent and perishable) for patient care.

What is the importance of inventory management in healthcare?

Inventory management is crucial for effective running in an environment as fast-paced and unpredictable as a hospital.

This is mainly due to the sheer variety of supplies needed in a hospital. For example, high-use/low durability items such as swabs and syringes require delivery and inventory workflows to ensure the hospital has enough stock.

On the other side of the spectrum, accounting for higher-end consumables such as surgical kits is important in maintaining high standards of patient care and from a financial standpoint.

Because these high-value consumables make up a sizable chunk of the hospital’s inventory, losing track of them can be extremely costly in the long term, leading to a snowball effect where the entire hospital’s financial well-being is affected.

In other words, because a hospital’s finances and patients’ physical well-being are deeply intertwined, inventory management is one of the most (if not the) most crucial aspects of hospital management.

What are the main challenges of hospital inventory management?

Running a hospital is a complex, multi-faceted endeavor. Thus, there is a multitude of challenges hospitals face in the day-to-day management of inventory. Here are just a few:

Managing expiry dates and recalls

By nature, hospitals (should) have a lot of stock, so putting together a system that ensures staff selects items with the soonest expiry dates can be difficult. In the long term, this can lead to severe inventory shortages, jeopardizing patient safety. Even if expired items are spotted in time, there is still the issue of having expired items in stock, which the hospital has to spend additional funds to dispose of.

Keeping the inventory list up to date

The bigger the facility, the higher the need for a constant influx of stock. Hospitals usually work with more than one vendor, often sourcing thousands of products from hundreds of providers.

This, too, can become a logistical nightmare, as critical items can easily get lost in the shuffle. On top of that, it can lead to situations where the hospital cannot access benefits that they’re entitled to, like reimbursements for faulty/unused products.

Managing expiry dates and recalls

By nature, hospitals (should) have a lot of stock, so putting together a system that ensures staff selects items with the soonest expiry dates can be difficult. In the long term, this can lead to severe inventory shortages, jeopardizing patient safety. Even if expired items are spotted in time, there is still the issue of having expired items in stock, which the hospital has to spend additional funds to dispose of.

Having adequate inventory levels

It may be tempting to order a lot of everything to ensure the hospital is properly stocked, but too many layers of stock redundancy pose their own set of issues. It can lead to a knock-on effect.

For example, stocks of expensive but unused antibiotics can expire in storage. A storage space that’s so overflowing with items that proper triage is nearly impossible. That storage space, too, needs to be properly ventilated and maintained (which requires additional costs). But that’s just one facet of the problem. Improper stock management (in terms of pure volume of products) can branch out into two separate issues:

• Stockouts. Or “stock insecurity,” this term describes the lack of certain items. This can cause personnel to hoard items to ensure they have them handy - leading to a snowball effect in terms of shortages.

• Overstocks. Overstocking is usually the direct consequence of stockouts - erring on the side of caution may cause hospitals to order more needed stock, leading to expiry issues and additional storage costs.

Uncaptured charges

Uncaptured charges describe the failure to scan the inventory items used during certain procedures. For example, personnel may fail to account for items delivered directly to the OR (which, by definition, are not on the hospital’s inventory list).

These items will not appear on medical billing, preventing hospitals from reimbursing them. In this situation, the hospital’s bottom line is affected.

Types of Healthcare Inventory Management

Generally, there are two types of healthcare inventory management: periodic inventory and perpetual inventory.

Each type of inventory management system comes with its own advantages and disadvantages. Let’s take a brief look at what each type of inventory management system involves:

What is perpetual inventory?

A perpetual inventory system is a system used to track and record stock levels. In this system, all purchases and sales are logged in the system automatically.

Essentially, the software records any change in inventory in real-time. Because this system accounts for any additions, subtractions, purchases and deliveries, it’s one of the most accurate inventory management systems hospitals can employ. The downside is that it requires advanced software to run, and if managed improperly, it could result in more costs in the long run.

What is periodic inventory?

Unlike perpetual inventory systems, periodic inventory systems do not update automatically; they require periodic manual input from employees. As Investopedia puts it, periodic inventory is a “method of inventory valuation where a physical count of the inventory is performed at specific intervals.”

The process goes like this: an employee physically takes inventory at the start and end of a specific period. Once employees have taken the inventory, the system is updated with new inventory data. While this system works well for smaller healthcare facilities (and is less costly than an automated inventory system), it leaves more room for error than when performed by a computer.

Now that we have covered the general aspects of inventory management let’s delve into a few hospital inventory management best practices that you can implement right now in your healthcare facility.

Inventory Management in Hospitals - Best Practices

Avoid inventory redundancies

Redundancy-heavy processes may play a crucial role in certain industries - airplanes, for example, are built with dozens of layers of redundancy, not so much in a typical hospital that operates with a revolving door of perishable, high value items.

Interior policies encouraging inventory redundancy can lead to employees ordering surplus items or misplacing products, affecting the hospital’s bottom line. A good way to avoid this issue is by implementing a system where items are tagged and categorized. This organizational system can help staff locate exactly what they need when they need it and incentivizes employees to return the equipment to the correct location when they no longer need it.

Collect data and look for patterns

A data-centric inventory management system is one of the best ways to proactively solve supply issues. By gathering data and optimizing it, medical facilities can track inventory and prepare for potential shortages before they seep into the day-to-day running of the hospital. Ideally, the end game should be reducing reliance on manual processes, which can be prone to error - either due to processes grandfathered in from previous administrations or human error caused by understaffing and the high-stress nature of the job.

Some factors that can be analyzed through data are:
• Usage vs. order frequency ratio
• Lifecycle management and equipment maintenance
• Items usage across departments
• Which items are the likeliest to run out faster than delivery can keep up

Implement a supply management system

Having a supply management system in place can mean the difference between an understocked ER and an organization that functions properly.

Supply management systems should communicate with the inventory database to account for matters such as storage, procurement, and distribution of supplies. Another important action should be establishing clear protocols regarding ordering and restocking supplies - thus preventing the challenges listed in the previous section.

Tag any equipment and supplies

Barcodes and tags are a surefire way to manage inventory efficiently, especially perishable items with low shelf life. With this system, hospitals can easily implement check-in/check-out flows for medical instruments like stethoscopes, ensuring that staff have these items handy. Moreover, tags and barcodes lower the risk of missing or misplaced instruments.

Assemble a clear chain of responsibility

Hospitals, like many other organizations, have clear hierarchical structures. However, in many hospitals, that basic tenet doesn’t seem to apply to inventory management.

Ideally, a hospital should have several staff members in the inventory management department. A “checks and balances” system may be in order here.

For example, a hospital can assign a few staff members to review the purchase orders, spot any redundancies or shortages using data, and pass that information to the team that places supply orders.

Then there’s the team that cleans and organizes supply rooms and ensures the items are kept in ideal conditions. The top layer of management (hospital administrators) handles the macro aspects of the operation by assigning duties and ensuring that each team member understands their role and responsibilities.

(optional) Move to a lean strategy

Lean strategies can help your healthcare organization optimize inventory levels and reduce waste. Lean strategies involve streamlining processes - not cutting corners -so that medical professionals have equipment and supplies handy.

Hospital Inventory Management Wrapped Up

There are many approaches to hospital inventory management - this article merely scratches the surface. However, following the practices outlined in this article will take you a long way towards optimizing the hospital’s inventory needs.