Hospitals frequently monitor supply chain performance using the metric supply expense as a percentage of adjusted operating budget. This metric provides a good budget forecast and signals when a hospital’s expenditures are beyond those allocated in the current budget. As a benchmarking metric, supply expense as a percentage of adjusted operating expense may not be a good gauge of comparative performance. When hospitals use this budget-focused metric to benchmark, they run the risk of misclassifying supply chain performance for a number of reasons, including:

1. Hospitals located in low-labor regions should have lower adjusted operating expenses.
2. Hospitals serving an older patient population may have higher usage of physician preference items and pay premium prices for new and enhanced devices and implants. 
3. Higher patient acuity can result in high utilization of supplies and longer length-of-stays.—V.S.D.

This article first appeared in the September 2008 issue of Materials Management in Health Care.

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