How to Benchmark Effectively For Cost Savings

This article was written by Lisa Miller.

Benchmarking is the third of the four mission critical components to manage your hospital’s outsourced agreements and uncover vital areas for margin improvement. In this article, I explain how to benchmark effectively for cost savings.

The first component is gaining access to your line item details to understand your historical spend.  Secondly, you need to understand your operational, clinical and financial terms.

Why your hospital needs to benchmark

How confident are you that your health system is not overpaying for the items and services in your outsourced services agreements?

Hospitals do not always understand the potential for new pricing structures or benchmarking. It may be that your health system wants to try something a little different, such as a risk share agreement, or a brand new negotiation strategy.

Whatever your goal, it’s important to make those decisions based on accurate data, and understand the cost drivers.

Benchmarking is an essential part of that process.

At VIE Healthcare® we price benchmark from data analytics, utilization and contract reviews.

Benchmarking is the third step in the process

Hospitals often go straight to benchmarking in their search for cost savings opportunities, but benchmarking is the third step in the process.

• Step 1: Understanding your historical spend.
• Step 2: Identify and understand any variation trends that may suggest an anomaly, or areas you may want to think differently about.
• Step 3: You can then go to benchmarking, with a complete – and, more importantly, accurate view of total spend.

Before benchmarking can occur, hospitals require accurate data to gain knowledge of their internal operations and overall spend areas. One area that is often missed is the utilization trends in the invoices of your outsourced agreements. Reviewing the details in your invoices reveals utilization trends that affect a large part your hospital’s financial margins.

The basis of our process at VIE Healthcare® is the review of line item details in your invoices to rapidly identify cost savings opportunities.

Benchmark the pricing and cost structure of your outsourced agreements

Benchmarking market standards for pricing and contract terms will be difficult without access to a reliable and extensive resource of peer pricing data to set new pricing standards.

Benchmarking is the average, the norm. At VIE Healthcare®, we constantly seek out ways to innovate.

How do we exceed norms in the industry so we can reduce those costs and then closely manage them?

Here are a couple of examples of what can be achieved:

Case Study 1: We were asked to partner with a New York based health system on their staffing renewal, to be able to benchmark, provide historical data and perform an RFP. As part of that review, we required a 12-month historical spend to be able to fully understand every detail of utilization and benchmark 100 percent of what the hospital was utilizing, not 50 or 70 percent. In that analysis, we uncovered utilization trends and overtime rates. This review saved our client over $800,000.

Case Study 2: For another client, we were asked to review their telehealth services. We noted that their telehealth outsourced agreements were on the rise, not only for stroke-telehealth, but in tele-ICU and other non-traditional areas. In this case, we had two options available around benchmarking. This client was being charged a startup fee, a monthly fee, a number of encounters and an unlimited 24/7 plan, based on a per diem rate facility. After reviewing their rates, we were able to change their agreement to two different structures. Total savings amounted to $147,429 by having a per counter rate.

As part of this process, obtaining the 12-month historical spend data is vital. You cannot rely on your vendors to supply that information, that data is only available in your invoices, that’s where you’ll find the true record of what your outsourced services are costing your hospital.

Remember:

• You cannot spot check or review the last three months.
• You must have a comprehensive view of what real utilization was in your hospital.
• If you benchmark from contract alone, you will miss significant cost savings opportunities.

Start with a big cost savings win in professional services fees

Has your organization benchmarked all professional services hourly rates in the last year? This may be in marketing, legal or IT, anywhere your hospital is paying hourly rates.

Have you benchmarked to ensure you are paying a competitive rate?

At VIE Healthcare®, we often find hourly rates embedded in invoices. Vendors will often push back on professional services fees, but in reality, great data is available around benchmarking.

If you want to start with a big cost savings win, I recommend an initiative to review all of your professional services fees and hourly rates and get them benchmarked. It can be a great cost savings opportunity – and remember, in term or out of term, these agreements can be renegotiated at any time.

Benchmarking can be effectively carried out with a third party resource who works with your peers. At VIE Healthcare®, our extensive insight enables our clients to secure better than average rates and terms. Our expertise also helps health systems to renegotiate better pricing and terms on their outsourced services agreements.

Discover best practices for your hospital’s outsourced agreements. Download our Purchased Services Executive Report.

Schedule a call with Lisa Miller to uncover the hidden cost savings opportunities in your outsourced agreements.