45–55 Percent of a Hospital’s Non-Labor Costs Is Purchased Services

Hospitals are turning their focus to purchased services spend.

One reason is that it makes up 45-55 percent of a hospital’s non-labor costs.

Most spend on purchased services is driven by departments, for instance, revenue cycle, IT, and laboratory services.

At VIE Healthcare®, we regularly see that only 15-20 percent of purchased services spend is overseen or managed by the supply chain.

That prevents supply chain from having the insight or overview it needs to manage this large area of spend effectively.

We also know that because supply chain doesn’t oversee the entire purchased services spend hospitals are missing opportunities to reduce costs.

These areas include:

1. Price benchmarking.

• Hospitals often go straight to benchmarking in their search for cost savings opportunities, but benchmarking is the third step in the process.
• The first step is to understand your historical spend.
• Next, you need to identify and understand any variation trends.
• After that you can go to benchmarking with an accurate view of spend.

2. Line item analysis.

3. Contract negotiation.

Or just the discipline of going through a formal RFP process.

At VIE Healthcare®, we are big supporters of building internal supply chain teams and creating a center of excellence, with the supply chain at its core.

There’s one more point I’d like to emphasize.

Hospital departments depend on purchased services.

People working within those departments depend on purchased services.

It can be hard for department leaders to negotiate cost savings with vendors when they rely on them on a day-by-day basis.

That’s why we recommend the entire purchased services spend is overseen by the supply chain.

Supply chain can partner with those departments and negotiate directly with vendors on their behalf.

We help those departments get their best pricing, look at line item analysis and work with supply chain to oversee purchased services spend and reduce their cost structure.

Reach out at lmiller@spendmend.com to discuss your cost savings goals and how we can support and accelerate cost savings opportunities in your organization.