It may seem harmless or even smart to have a lot of excess stock, but manual inventory is a drag in more ways than you might think. We fully automated our inventory ten years ago and haven’t looked back; in retrospect, there are three reasons smart inventory cabinets have really made sense for us at Saint Francis Veterinary Center, and why they seem poised to be come one of the trends of the coming decade.
1: Protecting your people
First and foremost, uncontrolled inventory poses a risk to your staff. I never thought about it much growing up, but the reality is that my Dad was always an arm’s reach from a locker full of narcotics, some of which are deadly by design. And when I say ‘locker’ it’s a little bit of a misnomer. Like most practices, there were certainly times when that lockbox wasn’t locked.
These days, the risk to staff from controlled substances is much more real. Levels of addiction in America have never been higher, as over 130 people die every single day from opioid related drug overdoses.1 Some of these deaths occur within the veterinary community, as ready access to these drugs is sometimes a gateway to addiction, or the inverse: addiction becomes the reason to seek employment at an animal hospital. According to a recent survey, 12% of veterinarians are aware of opioid abuse or diversion by a staff member, so this isn’t something that leaders of practices are in the dark about.2 Tragically, veterinarians are also 2-4 times as likely as the general population to take their own life.3 The causes for this trend are complicated, but ready access to narcotics provides a means for those who find themselves in a bad place.
Automated dispensing does not solve the opioid & suicide epidemics any more than seat belts solve car accidents. Neither is a 100% solution, but at the same time, not using them is needlessly dangerous. Smart cabinets significantly reduce staff risk in three important ways:
Each drug gets its own double-locked container
Fingerprint access – no keys
The option to require a second person’s fingerprint to access schedule II drugs
We see CUBEX smart cabinets as mandatory elements of a practice-wide effort to improve staff safety.
2. Protecting Your Practice
Veterinarians are generally shielded from legal consequences of professional wrongdoing because, as heartless as it sounds, pets are considered property, and liability for harming a pet is usually the value of the property – a few thousand dollars at most. Employees, however, are people, and that’s a whole other ballgame.
In the event of an incident of employee self-harm (overdose or suicide), it’s possible that the little plastic tacklebox or open lockbox that is so commonly used to store loaded syringes ahead of surgeries could be characterized as gross negligence or willful, reckless conduct. If the informal standard operating procedure of the practice (‘this is how we do things here’) provided a reliable, open-access source of narcotics, a wrongful death suit brought by the family of the deceased could potentially carry damages into the millions of dollars.
With all of that added attention comes an increased risk of involvement from the DEA or state regulatory authorities. Federal fines start at over $14,000 per infraction, and there’s almost never just one. More dangerous, however, is the risk to the registrant’s DEA and medical license. As seen in a recent case in Colorado, a veterinarian can be forced to surrender their means to earn a living as part of a settlement to resolve the mishandling controlled substances.4
At our practice, smart drug cabinets show us exactly who had access to which controlled substances and when. There are no keys to be stolen or shared, since it’s a biometric, fingerprint-driven system, and records are kept automatically. When combined with other elements of a narcotics safety program, like cameras, regular background checks, drug testing, and most importantly, a formalized standard operating procedure, proper use of smart drug cabinets can help to protect your practice and your medical license from accusations of negligence and reckless conduct, potentially shielding you from a career-altering lawsuit.
3. Protecting Your Profit
When I take the legal hat off and put the business management hat on, I look at the top and bottom line of the P&L. Inventory controlled by smart cabinets helps in both places.
Top line – missed revenue, missed profit.
Think of how easy it is in your practice for the staff to grab medications when asked, then forget to put those charges on the client invoice. It happens daily! Your staff is focused on patient care first, and sometimes things just get busy.
AAHA found that 17% of charges are missed when tracked manually
Industry consultant Mark Opperman looked at 300 practices and saw over $64,000 in missed revenue per doctor, per year, $7,000 per year ($23 per day) from just injectables alone.5
Service codes are often recommended as a remedy for missed medication charges and we certainly make use of this approach at Pathway, but it still doesn’t create a physical control on the inventory. A smart cabinet that’s integrated with your practice management system will automatically bill the client whenever a medication or other item is dispensed, and closing that loophole has massive implications for your P&L and your balance sheet.
Bottom line – too much cost, at the expense of profit.
When you’re tracking inventory manually, you never really know how much you have, and as a result you carry more than necessary so you don’t run out. Prior to automating our inventory in 2010, we had back stock all over the place. It occupied space that we now use to generate revenue: exams, lab diagnostics and imaging. Inventory automation with smart cabinets allowed us to dramatically reduce the amount of inventory we carry thanks to the fully automated, high-density storage of our CUBEX system. The difference between what that space earned us as storage (essentially nothing) and what it earns us now is tens of thousands of dollars a year.
Smart cabinets are also very effective at reducing waste and overuse. When there’s a big pile of supplies sitting in the open, human nature is to grab more than we need. Putting those items behind a door, with a recorded quantity, makes everyone more conscious of waste, with the added bonus of preventing pilferage. All of this reduces COGS (cost of goods sold).
COGS is an often quoted but frequently misunderstood part of the P&L. When the time for transition finally comes, your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) will be center stage because your practice’s sale price will largely be determined by your EBITDA multiplied by a number (your ‘multiple’). That multiplie recently has generally been between five and ten.
If revenue remains constant, COGS and EBITDA become inversely correlated. Every dollar of COGS reduction usually goes right onto your EBITDA, meaning that $10,000 in reduced annual COGS translates into $50,000-$150,000 in your pocket when the practice is sold. Having just gone through this process, I can say the reduced COGS from CUBEX had a very positive impact on our transition from a financial perspective.
The last word
Smart inventory cabinets will tbe one of the biggest trends of the 2020s in veterinary hospital management. They’ve been standard of care in human health for decades, and are finally making serious inroads into our industry thanks to improving technology, falling prices, and increased attention from manufacturers. If you’ve considered these in years past but put them on the wish list or the back burner, it may be time to re-consider; it’s a whole new decade and automated inventory is more important and affordable than ever.
1. CDC/NCHS, National Vital Statistics System, Mortality. CDC WONDER, Atlanta, GA: US Department of Health and Human Services, CDC; 2018. https://wonder.cdc.gov.
2. “Prescription Opioid Epidemic: Do Veterinarians Have a Dog in the Fight?” Derek S. Mason, MPH, et. Al, Am J Public Health. 2018 September; 108(9): 1162–1163
3. Suicide among veterinarians in the United States from 1979 through 2015, Suzanne E. Tomasi DVM, MPH et al, Full Text Journal of the American Veterinary Medical Association, January 1, 2019, Vol. 254, No. 1, Pages 104-112
About the Author
My father, Dr. Mark Magazu, founded Saint Francis Veterinary Center back in 1986, so I was raised in a veterinary practice. We’ve come a long way from that first tiny clinic, ultimately becoming the only three-time Finalist for AAHA Accredited Practice of the Year for North America, winning first place in 2019.
When I was considering careers, I went my own way and studied economics, public policy, management and the law rather than veterinary medicine – and still I found my way back to the family business .
Our recent ownership transition to Pathway Vet Alliance has furthered this continued pursuit of innovation designed to increase efficiency and profitability, giving me a unique perspective on how technologies like Cubex are shaping our industry in the wake of increased consolidation and other market trends.