Supply costs are one of the most significant expenses in hospitals and other healthcare facilities, second only to labor costs and administrative expenses. In fact, supply chain spending represents about one-third of total operating expenses at U.S. hospitals.

According to Definitive Healthcare data, U.S. hospitals reported a combined $36 billion in medical and surgical supply costs in 2018—averaging $11.9 million per hospital. This medical and surgical supply cost metric is sourced from the Medicare Cost Report, and includes the cost of medical devices, implantable devices, and pharmaceuticals charged to patients without overhead costs. 

Medical and surgical supply costs

 


Medical and surgical supply costs account for over half of total supply expenses

Due in part to the high cost of pharmaceuticals and the impact of physician preference item spending, medical and surgical supply costs have been steadily rising in recent years. Between 2014 and 2018, medical and surgical supply costs increased by 7 percent each year at U.S. hospitals. In comparison, total supply costs increased by just 6 percent each year during the same period. 

With this increase, medical and surgical supply costs have also begun to account for a greater percentage of total supply expenses. In 2014, for instance, medical and surgical supply costs represented 54.9 percent of the total supply budget. In 2018, however, that share rose to nearly 56 percent of hospital total supply costs. 

Total supply costs

 


Hospitals with over 250 beds average $56 million in medical and surgical supply costs

There's a strong correlation between reported medical and surgical supply costs and hospital bed count. According to Definitive Healthcare data, hospitals with 25 beds or fewer spent an average of $2.24 million on medical and surgical supplies in 2018. In contrast, hospitals with 250 beds or more spent an average of $56 million in medical and surgical supply costs—nearly 25 times the amount reported by smaller facilities. 

It's not surprising that hospitals with a larger bed count would also report larger supply costs. High-capacity hospitals have a greater number of patients to care for than small healthcare facilities and, because of this, require more resources and supplies in order to administer proper care to all patients. 

Though medical and surgical supply costs are lower at hospitals with 25 beds or fewer, this expense actually accounts for a much greater portion of the total supply budget at low-capacity facilities. In 2018, medical and surgical supply costs accounted for 63.4 percent of the total supply expenses at hospitals with 25 beds or fewer. At hospitals with 250 beds or more, however, medical and surgical supply costs made up only 43.5 percent of total supply expenses—almost 20 percent less than the budget share at low-capacity hospitals. 

Medical and surgical supply costs by hospital bed count

 


Southeast region of the U.S. averages the highest medical and surgical supply costs

Hospitals in the Southeastern United States have the highest medical and surgical supply costs, with an average cost of $14.48 million reported in 2018. Most other U.S. regions reported an average medical and surgical supply cost at or around $12 million in 2018, with the exception of hospitals in the Western United States—which reported the lowest average supply cost at $9.81 million. 

Despite their slightly lower average supply costs, hospitals in both the Midwest and Southwest regions reported medical and surgical supply costs as a higher percentage of their total supply budget. In 2018, medical and surgical supply costs accounted for 59.3 percent of total supply costs at Midwestern and Southwestern hospitals. In comparison, medical and surgical supply costs made up 10 percent less of the total supply share at Northeastern hospitals. 

Medical and surgical supply costs by hospital region

 


Supply costs larger percent of total supplies at independent hospitals

On average, medical and surgical supply costs are much higher at hospitals operated by an integrated delivery network (IDN) than at independent, unaffiliated hospitals. In 2018, IDN-operated hospitals reported an average of $15.2 million in medical and surgical supply costs, compared to an average of $4.9 million at independent hospitals. 

However, these medical and surgical supply costs account for a much larger share of total supply costs at independent hospitals than they do at IDN-operated facilities. For instance, medical and surgical supply costs represented over 60 percent of the total supply budget at independent hospitals in 2018, while these costs accounted for just 54 percent of total supply expenses at IDN-operated hospitals. 

The difference in budget share could be due to the fact that large IDNs are able to leverage their size and market influence to negotiate supply costs for their member facilities in much the same way that a group purchasing organization (GPO) would. Though IDN-operated hospitals are spending a much greater amount on medical and surgical supply costs than independent hospitals, the discounted rates that these facilities secure through their health network mean that these costs account for a much smaller percentage of their total supply budget. 

Medical and surgical supply costs by hospital ownership

 


Cleveland Clinic tops hospitals with $650 million in supply costs

Cleveland Clinic has the highest supply cost across all U.S hospitals tracked by Definitive Healthcare—with a medical and surgical supply cost of $651 million reported in 2018. University Hospital in Michigan and Northside Hospital in Georgia reported the second and third highest medical and surgical supply costs in 2018, with $434 million and $375 million, respectively. 

All three of these top hospitals have over 500 staffed beds, which contributes to high supply costs. Cleveland Clinic and University Hospital are also academic research facilities. This means that not only are these hospitals treating patients with specialized, highly-complex conditions, but they're also more likely to provide expensive, cutting-edge treatments to those patients—both of which impact hospital supply costs. 

Hospitals with the highest medical and surgical supply costs

cleveland-clinic-logo

Cleveland, OH

$651 Million

Medical/Surgical Supply Costs in 2018

#1 in 2017

$549 Million

michigan-medicine-logo-umhealth

Ann Arbor, MI

$434 Million

Medical/Surgical Supply Costs in 2018

#2 in 2017

$359 Million

northside-hospital-logo

Atlanta, GA

$375 Million

Medical/Surgical Supply Costs in 2018

#4 in 2017

$349 Million

*Results based on 3,039 U.S. Hospitals that reported data each year 2014 to 2018.