Expert insights on purchased services
Contracted purchased services span a wide range of health system functions from landscaping and building maintenance to lab services, pharmacy and more. In many cases, these contracts contain hidden costs that represent significant savings opportunities.
HealthTrust inSight Advisory Solutions AVPs Andy Motz and Drew Preslar describe some essential steps to realizing opportunities in purchased services:
1. Data access & analysis. When organizations begin identifying potential cost savings, one of the biggest barriers is accessing the data related to purchased services. They must review their accounts payable information to understand what suppliers they are using in different categories, as well as the amount of spend related to each. Categorization is a major challenge. Even when a health system has adequately captured the data necessary to identify savings in purchased services, it still sometimes struggles to dissect the data in a way that reveals savings.
2. Adequate resources. A lack of human resources can also make it difficult to identify potential cost savings in this space. A contracting department may have staff dedicated to purchased services. However, due to the wide variety of contracts throughout various departments within a health system (e.g., facilities and operations, clinical departments, environmental services), one or two people aren’t enough to cover that scope. Small teams can easily get overwhelmed.
3. Centralized contracting. A hospital operations director may negotiate for environmental services or landscaping while someone in another area of the organization is negotiating for the same services. Each person may keep the contracts in his or her own office, so the larger organization doesn’t have visibility into all of the suppliers being utilized.
Health systems can find quick savings by focusing on services where multiple contracts are in place at the hospital level. If an Integrated Delivery Network (IDN) with multiple facilities consolidates contracts, the savings can be significant—even with smaller contracts like snow removal.
One of the best ways to lower the cost of purchased services is to have the supply chain department handle all contracts. Supply chain teams have the experience needed to negotiate agreements, drive costs down and obtain the best quality service.
“Leaders, starting with the CFO or COO, must reinforce the message throughout the organization that all contracts need to be centralized,” Motz says. “Communication from the top can prevent individual department directors from signing contract documents.”
There must also be consistent reminders that contracts should not be signed at the local level. In IDNs where each individual hospital has autonomy, that can be a challenge. “When the central organization tries to assert more control over contracts, there may be pushback,” Motz says. “You have to manage that change and keep your eyes on it.”
Solutions with proven results
Purchased services consulting from inSight Advisory can help members move toward a path of cost savings.
HealthTrust’s inSight Advisory Solutions recently worked with a health system with over 100 hospitals. “The organization had purchased services contracts at the local level that its leaders weren’t aware of,” Preslar says. “The major barriers were getting their arms around the data, understanding what was in scope and determining how to go out to bid.”
Focusing on three contract categories, the insight Advisory Solutions team helped the system get its data under control. “We added resources to ensure they focused on their initiative and kept to their timelines,” Preslar says. The results have been impressive. Across the three contract categories, the organization has saved $4 million.
Maximize your purchased services savings opportunities by contacting Andy Motz, AVP, inSight Advisory Solutions.
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