Hospital Purchased Services Spend, Category 6: Administrative

This article was written by Lisa Miller.

At VIE Healthcare Consulting we work with six categories of hospital purchased services spend. This blog looks at Administrative.

To review our summary of this entire series, click here.

Purchased services is that part of your organization’s spend that is contracted, purchased from or outsourced to a third party vendor, rather than carried out by your hospital’s in-house team.

Healthcare in this country is becoming increasingly complex and costly. Purchased services can account for up to 40%-50% of your organization’s non-labor spend, yet hiding in your invoices is the potential for major savings which can dramatically improve your hospital’s margins.

Purchased services encompasses every department in your health system.

At VIE Healthcare Consulting we provide a framework for our clients to categorize their purchased services spend. That framework consists of six categories.

The sixth and final category is Administrative. 

What are Administrative Services?

Administrative services are often described as the ‘back end’ functions of a hospital or healthcare system which include scheduling appointments, billing and the recruitment of staff.

Research consistently confirms that administrative costs in US healthcare are among the highest in the world.

One AHA study concluded that the average hospital spent $7.6 million in 2017 on administrative costs, equating to around $1200 per admitted patient. A further study found that an estimated 25% of healthcare costs in the US are administrative.

With these figures in mind, administrative services must be a cost consideration for your healthcare facility.

Outsourcing Administrative Services

While administrative duties are necessary for the operation of organizations in every industry, healthcare organizations face additional hurdles with federal and state regulations to which they must adhere.
These regulations are in place to ensure that patients receive safe and high-quality care. In recent years, however, clinicians have found that their efforts to comply with the growing number of regulations are interfering with their ability to provide good patient care.

The timing and pace of regulatory change and the quality reporting requirements place an additional burden on hospitals and healthcare providers.

There are additional administrative tasks that must take place in any healthcare organization, which are outlined below. Many hospital employees, including clinicians, have assumed responsibility for carrying out these administrative tasks, but the process has become inefficient.

Hospitals will often outsource administrative duties to ensure healthcare providers who have been trained for patient care are able to devote more time and energy to fulfilling this role.

Administrative Services: An example of outsourcing

One area of a hospital’s day-to-day operations that is becoming more complex and costly is the supply chain. A 2018 report suggested that each healthcare institution could potentially save around $11 million per year if it transformed its supply chain.

Hospitals partner with logistics vendors to help contain the rising cost of supply chain management.

Finding an experienced third-party provider who focuses on the healthcare industry can help your hospital to deliver excellent patient care.

You can be confident that your supply chain is being managed by a vendor who understands best practices in healthcare logistics, product security and regulatory compliance.

Administrative Services: What’s included?

Administrative services include, but are not limited to, the following:

• Managing and coordinating vendors.
• Parts procurement.
• Equipment management.
• Service documentation.
• Supply chain management.
• Maintaining employee records.
• Budget management.
• Staffing management.
• Facility project management.
• Business office management.
• Insurance contract negotiator/analyst.

To learn more about using hospital purchased services as a leading strategy for cost reduction in healthcare, click here.

Invoice ROI™ from VIE Healthcare empowers your organization to analyze your purchased services trends and track these costs in real time to deliver actionable intelligence.
For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at info@viehealthcare.com.