Find Cost Savings in The Hospital Purchasing Process
VIE recognizes the challenges healthcare faces today. We help hospitals:
- Overcome cost management challenges in a fragile supply chain.
- Implement proven cost reduction initiatives.
- Introduce innovation in hospital purchased services spend.
Call VIE at 1-888-484-3332 to find guaranteed cost savings today!
What Are Hospital Purchased Services?
Purchased, or outsourced services are defined as any hospital purchased service outsourced to a third party. What most health systems don’t realize is that hospital purchased services spend can account for between 40%-50% of your non-labor costs. This is complex as many organizations don’t have a clear understanding of what a hospital purchasing service includes.
Questions including how do hospitals buy medical supplies and how much do hospitals spend on technology can only be answered with an effective hospital purchasing process.
Hospital purchased services agreements are an essential part of cost management.
Health care services include medical supplies procurement, third-party vendor services, pharmacy programs, and essential components on your purchasing department list.
At VIE we separate them into 6 Purchased Services Categories For Cost Savings to provide a framework for cost analysis for each purchase department in hospitals.
5 Benefits of Outsourcing Purchase Management In Hospitals
- Reduced administrative costs.
- Increased profitability.
- Greater focus on patient care.
- Decreased hiring and training costs.
- Access to a broader talent pool.
How Hospital CFO Challenges Prevent Cost Savings
The CFO is the one who makes purchasing decisions in hospitals, yet those decisions are difficult without access to accurate data. When your budgets are tied up by hospital purchase provider agreements and supplier contract difficulties, it can impact stakeholders, vendor relationships, and patient satisfaction.
Challenges faced by CFOs in hospital purchased services include:
- Overspending fueled by increased regulation, fragile hospital supply chain, the rising cost of prescription drugs, and declining revenues in a time of disruption.( 1 )
- Lack of data analysis, inadequate tracking resources, and the number of contracts involved.
- Service quality doesn’t meet the expectations of the hospital purchaser-provider agreement.
- Hospital purchasing process lacks visibility or control.
- Contracts expire leading to a gap in services.
- The risk of cybercrimes with outsourced IT and computer operations.
Additional challenges in understanding invoice details mean hundreds of pages of invoices and thousands of line-items are reviewed manually, carrying a high risk of error.
7 Common Errors In Purchase Management
Error #1: Underestimating how much money is tied up in your spend. Hospitals are missing out on the hidden cost savings in each hospital purchased service.
Error #2: Assuming your hospital purchasing process has access to the line-item details of your invoices. Accurate data is difficult to obtain because a service is first performed then billed retrospectively.
Error #3: Department silos lead to automatic renewals, overlooked pricing errors, and a lack of cost control. Collaborative practice and a team-based approach seen in care teams can be adopted in purchase management. (2)
Error #4: Assuming your hospital is securing the best market prices from your GPO or vendor.
Error #5: Not bringing in outside expert resources to help. Cost-saving experts help free up those vital resources to enable you to focus on patient care.
Error #6: Assuming your purchasing department has the necessary skills to carry out contract negotiations inhouse. Most don’t have the in-house expertise necessary to negotiate with highly skilled and highly trained professionals.
Error #7: Jumping to benchmarking before analyzing the costs. The first step to identify the hidden opportunities for cost reduction in your hospital purchased services is line-item analysis.
The Critical Nature of Line Items Invoice Details
The invoice line-item details are the single most important strategy for your hospital to achieve maximum savings. Line-item analysis of your invoices identifies the hidden cost savings in each purchasing department list. Any manual process leaves room for error and missed opportunities.
Even when health systems utilize tools and technologies to categorize their hospital purchased services spend and to competitively bid services, these strategies fall short. They fail to deliver 100% of the invoice line-item details and monthly consistency cannot be guaranteed.
The margin improvement lies in the invoice line-item details analyzed to your hospital purchaser provider agreement.
Invoice ROI™ from VIE offers:
- Automation that provides visibility and accessibility into your invoice line-item details.
- Benchmarking capabilities by invoice line-item detail.
- Technology that fully automates the invoice to agreement reconciliation.
- Building a comprehensive Request for Proposal (RFP) that takes your last 12 months of invoice line-item utilization as the baseline for the RFP or contract renegotiation.
Case Studies in Purchase Management
Case study #1: Line-item analysis of contracts for clinical equipment paid off for one hospital in Western Illinois that found $900,000 of annual savings. This was achieved by paying for actual labor and materials used rather than full-service contracts that were never fully utilized.
Case study #2: A Wisconsin purchase department in hospital reduced its credit card fees from three different banks. Following a competitive bid process, the two banks with the lowest fees were selected, resulting in a savings of $85,000. Additionally, high-volume credit transactions were changed to ACH direct deposits, saving a further $105,000.
5 Steps to Implementing Cost Reduction Initiatives
Improve the hospital purchasing process with the following steps:
- Assess total annual expenditures by vendor, category, and contract: Take a deep dive into every purchase order file, examine all contracts and new service requests. Identify opportunities for vendor consolidation. Prioritize based on cost, contract end dates, vendor numbers.
- Define the business case for the opportunity: Analyze pricing, standardized contract expectations, service and supplies, and the potential outcome. Include one-time cost estimates, for instance, construction, training, and licensing fees.
- Obtain full executive support: A committee of senior leaders led by a CFO assists in setting cost savings goals and overcoming obstacles.
- Form workgroups to address services: Optimize opportunities for successful vendor negotiations.
- Measure results periodically: Track savings and utilizations at agreed intervals.
Each purchasing department in hospital will benefit from implementing these steps.
Improve Your Hospital Cost Savings with VIE
Hospitals must innovate in cost management to continue to remain competitive in a difficult environment. Hospital purchased services require a fully customized approach that allows hospitals to focus on delivering exceptional care and delivering on cms quality initiatives.
VIE helps hospitals achieve guaranteed margin improvement through the industry’s best price benchmarking, contract analysis, data analytics, and cost reduction strategy.
Our unique process:
- Achieves dramatic savings in high areas of spend.
- Centralizes the decision-making and hospital purchasing process.
- Consolidates different contracts for the same service.
- Identifies your hospital’s current performance on key indicators.
- Prevents over-billing and cost overruns for each hospital purchasing service.
- Achieves guaranteed margin improvement with our automated, patented technology, Invoice ROI™.
- Empowers CFOs to reinvest in innovation, improve patient outcomes and drive margin improvement.
Purchased services management in hospitals offers the biggest cost savings opportunity.
Key takeaways
- Hospital purchased services account for up to half of your non-labor spend.
- CFOs don’t have clarity into overall cost data due to inadequate tracking resources, supply chain issues (3), falling revenues, and rising prices.
- Line-item analysis is the single most important strategy to save money.
- Health systems must innovate to compete in today’s environment.
VIE has been on the frontline of non-labor cost reduction in hospitals since 1999.
Eliminate excess costs, accelerate cost savings initiatives and save $$$.
Get started with our Hospital Purchased Service experts today. Call VIE at 1-888-484-3332
Frequently Asked Questions About Hospital Purchased Services
A hospital GPO (Group Purchasing Organization) uses its leverage to negotiate discounts with manufacturers and other vendors to help health systems more effectively manage hospital contracts. Some hospitals have an over-reliance on GPOs which can result in increased costs. At VIE, we recommend that all hospitals implement their own independent GPO strategy.
The goal of a purchasing department in a hospital is to ensure the supply of high quality products and services at an optimum price. Purchasing departments can also play a critical role in vendor negotiations, as well as create purchase orders, solicit bids and ensure compliance. The requirements of individual organizations vary, for instance, a community hospital has different needs versus a large health system.