The Hidden Cost Savings In Your Purchased Services Agreement

This article was written by Lisa Miller.

The Hidden Cost Savings In Your Purchased Services Agreement

The Cost Savings are in Your Purchased Services Invoice Line-Item Details Analyzed To Your Purchased Services Agreement

Purchased Services Agreement

Over the past few years, consulting companies, technology solutions and GPOs have entered into the purchased services spend management market to provide solutions to hospitals. GPOs provide a purchased services agreement while others provide a direct purchased services agreement with a purchased services vendors through RFPs or contract renegotiations.

We frequently get asked why hospitals choose VIE Healthcare for their purchased services spend management strategies, purchased services technology, purchased services benchmarking and purchased services RFP and advisory services.

The main reason—is our methodology and ideology—that the invoice line item details are the single most important strategy your hospital must have in order to achieve the maximum cost savings results.

Categorization of purchased services is just the beginning and directional at best. As a supply chain executive said to me—categorization of purchased services spend is table stakes.

What really matters are four critical success factors

1. Automation that provides visibility and accessibility into your invoice line item details.
2. Benchmarking capabilities by invoice line item detail.
3. Technology that fully automates the invoice to agreement reconciliation.
4. Building a comprehensive RFP that utilizes your last 12 months of invoice line item utilization as the baseline for the RFP or a contract renegotiation.

When making a decision on a purchased services resource, here are comparisons for your consideration:

While purchased services as a total category of spend is significant and has one of the greatest possibilities for hospitals to deliver cost savings and margin improvement; it is also an area of spend with many challenges. The greatest misunderstanding comes from the root cause of purchased services spend and that is supply chain can’t run a line item report of every purchased services spend for their hospital. The entire purchased services spend is embedded in the invoices. If you were to run a 12-month report for your supply item spend, you would see the line item details, as an example, from physician preference items to exam gloves to syringes by line item detail by month. However if you ran a report on your purchased services spend, you would only see the total invoice amount for each purchased services spend and no line item details that rolled into the total invoice amount.  In order for a hospital to have a true detailed understanding of their pricing and utilization; they would need to manually go to the invoices to see the details and then if they wanted to analyze the specific purchased services spend, they would need to manually input those line item invoice details into a spreadsheet.

The C-Suite does not realize the enormity of this challenge of the invoice details being accessible in their materials management system and that the department leaders are receiving their purchased services invoices each month and are responsible for approving the invoice accuracy to the agreement terms and in some cases this could mean hundreds of pages of invoices and thousands of line items reviewed manually. In most organizations, supply chain is not responsible for the management of the purchased services spend. They may be involved in the contract negotiations and cost savings initiatives, but the ongoing monthly management to insure contract compliance and spend management is performed by the department.

Due to the fact that purchased services spend is entirely a manual process in order to gain visibility into the line item details of utilization, so many cost savings opportunities and cost management opportunities are missed, resulting in hospitals thinking they are achieving maximum savings when there is more waiting to be achieved. Even when hospitals utilize tools and technologies to categorize their purchased services spend and to competitively bid services, these strategies fall short because they don’t give 100% of every purchased services invoice line item details and with monthly consistency into their solution.

You can listen to Lisa Miller’s newest podcast episode on purchased services where we discuss:

• Are you getting the best pricing or a false sense of security?
• Why ratio benchmarking is a bad strategy.
• Four critical success factors in managing your purchased services spend.

Here are 6 of the 8 Purchased Services Categories of Spend:

Category 1: Clinical services

Patient care would not happen without clinical services. This category of purchased services spend includes areas relating to the care and treatment of your patients. It includes diagnostic tests and procedures, rehabilitation services, preventative and post-operative care, surgeries and procedures. The clinical services provided by your organization must comply with local, state and national standards. Financial reimbursement is increasingly being linked to the quality of care delivered in this area.

Category 2: Facilities and support services

Facilities and support services deliver critical services to support the clinicians providing patient care. The comfort and safety of your patients rely heavily on these services. Facilities and support services include costs incurred through areas such as housekeeping and environmental services, laundry and linen, patient transport, grounds maintenance and HVAC, among others. Outsourcing of facilities and support services is a common practice among hospitals and can offer numerous benefits.

Category 3: Finance/HR/HIM

Human resources (HR) and financial responsibilities must be administered effectively in order to maximize your hospital’s productivity and ensure employee engagement and retention. HIM (Health Information Management) is also crucial to complying with data relating to patient health. Finance, HR and HIM are often successfully outsourced in areas such as payroll and collection services. These services including temporary staffing, healthcare benefits, retirement planning, merchant cards and payroll services, among others.

Category 4: Biomed and maintenance Services

This critical, specialty area relates to the department that services and maintains medical equipment, ensuring its safe function. The importance of this area cannot be understated, and it is one which is frequently outsourced. The highly specialized role of biomed staff and the need to ensure their availability is a challenge for many hospitals. Biomed and maintenance services also include diagnostic tools and expertise, maintenance schedules and scope management.

Category 5: IT/telecom/telehealth

Technology is changing the face of healthcare and transforming every aspect of patient care. Keeping up with the pace of this disruptive change means the efficiency and reliability of technologies in hospitals has become crucial. IT/telecom/telehealth all benefit from outsourcing to ensure these evolving demands are met. Cost management can be a challenge for hospitals as benchmarking data and insights are limited.

An extensive range of services are included in this category, such as online patient portals, electronic health and medical records, cloud services, encryption, cybersecurity, data collection and data analysis.

Category 6: Administrative

Administrative costs in the US are among the highest in the world, equating to an estimated 25% of all healthcare costs. These services include the “back end” function of a hospital, for example, appointment scheduling, billing and staff recruitment. Their management is also affected by federal and state regulations. Hospitals often outsource administrative duties to devote in-house resources to patient care. Administrative services include staff management, budget management, service documentation and supply chain management, among others. Transformation of the supply chain alone could save hospitals up to $11 million every year.

Invoice ROI™  empowers your hospital to analyze your purchased services invoice line item detail and provides a way for you to trend and track purchased services costs in real time to deliver actionable intelligence.

Schedule a call to discover how we can help you identify cost savings in your purchased services spend through line item purchased services analytics.