10 Hospital Cost Reduction Strategies Using Purchased Services

In the past few years, there has been considerably greater attention to and focus on cost savings initiatives for hospital purchased services versus traditional medical/surgical items given the somewhat higher savings yield for most hospitals. Nonetheless, there is still an abundance of opportunity and areas of spend within purchased services that has yet to be realized for cost improvement. In today’s article I am going to discuss 10 strategies to optimize your purchased services cost savings that you can start implementing right away.

Hospital Purchased Services: 6 major categories

1. Utilize a framework to put your services spend into purchased services categories such as:

• Clinical
• Facilities/Support
• Finance, HR, HIM
• Biomed/Service & Maintenance
• IT/Telecom/Telehealth
• Administrative

Here are three examples within each category for you to consider.

2. You must be committed to a thorough historical analysis and purchased services contract performance review before you benchmark pricing.

Purchased services spend has a higher invoice-to-contract discrepancy rate than other supply purchases. Performing a contract compliance audit on your purchased services spend will uncover pricing errors and credits due back to your hospital. A historical analysis will also show you utilization trends and opportunities to improve how you access outsourced services.

Review all of your purchased services spend – even those protected by special relationships.

– As these areas of spend are typically not analyzed for cost savings opportunities and represent the largest potential to a hospital but a rationalization has been made as to why the spend shouldn’t be examined.

4. Bring PURCHASED SERVICES IN-HOUSE Where Possible.

Sometimes outsourcing is excessively and unnecessarily expensive and the only reason why it continues is the inertia of “That’s the way it’s always been done.”

5. Get a second opinion and additional analysis on your larger spend areas. Why would you want to pay more than your peers?

When deciding on a consulting resource, ensure you are picking someone who has deep expertise. Choose your consultant like you would choose a specialist – you want the consultant who has performed thousands of purchased services initiatives and has a proven track record for achieving material cost savings.

6. Formalize and structure a way to track and reconcile, on a monthly basis, your most complicated purchased services from the line item details on your invoices through data analytics.

7. Map clinical purchased services spend to your reimbursement.

Approximately one third of hospital purchased services spend is reimbursable or is tied to revenue. For example, are you paying more than you are getting reimbursed for esoteric lab testing?

8. If you have older purchased service agreements in place, are you reassessing their structure beyond the pricing for utilization improvement and or unfavorable contract language such as performance incentives that are not equally weighted?

9. Set firm timelines for project duration and completion and stick to them!

Delays in analysis, alignment, negotiations, and legal reviews will cost your hospital “savings” dollars. Many times I have seen purchased services cost savings projects unnecessarily pushed out as much as six months because of internal delays and a lack of urgency and commitment to finalize and realize the cost saving.

10. Repeat and review all purchased services contracting every two years.

Remember purchased service spend is very different from supply spend in that, when you order supplies, a formal process is followed:

1. An item is requested;
2. A PO# is provided to the vendor with detailed line item purchases;
3. The products are delivered and verified at the point of delivery; and
4. The products are then used within the hospital.

Purchased services spend on the other hand is variable and not discretely known to the hospital when the services are put into place. Services are performed and then invoiced to the hospital. A purchased service invoicing reconciliation process must be implemented to ensure pricing accuracy and “proper” utilization of services.