This article was written by Lisa Miller.
In a recent article, I outlined the four mission critical requirements that every hospital needs for effective management of your outsourced agreements.
Access to your line item details is the first mission critical component.
Purchased services – or your outsourced agreements – probably comprise around 50% of your hospital’s non-labor spend. Understanding the line item details of your invoices is critical to not only being able to identify cost savings, but to control spend.Understanding the line item details of your invoices is critical to not only being able to identify cost savings, but to control spend. Click To Tweet
Why do hospitals use an outsourced provider?
In our experience, there are four reasons for healthcare organizations to outsource key services. These are:
- Lack of in-house resources or a lack of access to essential skills.
- When working with an outsourced provider is more cost effective.
- Outsourced providers are used for either temporary support or a permanent solution.
- To perform the services in-house would require a significant capital or technology investment.
In addition, the global pandemic has increased spending in multiple purchased services areas, such as:
- IT services to accelerate the digital capability (telehealth, storage needs, staffing conversion to “work-from-home”, increase in cybersecurity needs, patient portal access).
- Temporary construction services (redesign of non-clinical areas to increase ICU bed capacity, temporary tents as testing/triage areas).
- Biomed/engineering services (conversion of CPAP machines to ventilators, conversion of rooms to negative pressure environments).
- Telecom and utility conversions.
- Need for clinical staffing services (due to increases in staff illness).
The barriers to accessing your line item details
Two of the biggest challenges to gaining access to your line item details are:
- A lack of understanding of your invoices.
- Recognizing the critical difference between supplies and outsourced agreements.
Remember, the services covered by outsourced agreements are first performed then invoiced, unlike supplies where you have a record of exactly what your hospital has purchased and pay only for those items.
Due to the nature of these agreements, there has to be a degree of confidence around the relationship with your vendor, namely, that they will bill you only for the services performed. At VIE Healthcare®, we often work with hospitals that have a sense that they are paying too much for those services but cannot pinpoint exactly where overpayments are being made.
Outsourced agreements need close monitoring and managing, but again, there are some very real and inherent issues why this is problematic:
- First of all, there is no automated process to gain line item visibility. Those line item details that you need are contained in on your invoices. This makes it difficult to validate utilization.
- Secondly, the agreements are complex, with multiple moving parts. As hospitals become more stretched, there is often a lack of available resources to monitor outsourced agreements.
- Thirdly, new services are regularly added to these agreements, making it either difficult or impossible for hospitals to effectively keep track of the additional costs and assess invoice accuracy.
There is much discussion around zero-based budgeting, but my question is: When you analyze those line item details, are all of these services needed?
A further question to ask is: What are your top 200 services costs by line items and by department?’
From there, is possible to get an understanding of the cost drivers and perform a pricing analysis.
There is unprecedented pressure right now to find cost savings. Across your organization, from finance directors to supply chain leaders, people need access to that information. Utilization is also trapped within those invoices.
Case study: Regulated medical waste
In this example, we reviewed hundreds of pages and thousands of line items in a comprehensive review of an outsourced agreement for our client. Within that agreement, in one small line item detail described as a “monthly fee increase” was a charge of almost $34,000. This fee was paid because the hospital did not have access to the line item details that would have identified this error.
This is what I often refer to as the “untold story” of outsourced agreements.
Managing and monitoring is the only way for hospitals to achieve cost savings. The disciplines put into place on a monthly basis will rapidly identify the anomalies or inaccuracies hiding in your invoices for your outsourced agreements.
Get in front of cost savings with Invoice ROI™
At VIE Healthcare®, we are focused on obtaining the line item details and equipping hospitals with the tools and insights to understand their contracts with our automated patented process, Invoice ROI™. This reconciles those line item details in real time and helps your hospital to get in front of cost savings.
But, it starts with access to the line item details. Your roadmap to cost savings will always begin with your contracts and invoices covering your outsourced agreements.
This is the VIE Healthcare® approach, but it could be your health system’s approach too, empowering your hospital to utilize market intelligence and make informed decisions on critical cost management strategies.
For further insights and analysis, download our Purchased Services Executive Report.
Schedule a call with Lisa Miller to discover how to access the line item details in your outsourced agreements.