The Hidden Cost Savings in Your Purchased Services Agreement

The Hidden Cost Savings In Your Purchased Services Spend featured

This article was written by Lisa Miller.

Where are the Hidden Cost Savings in Your Purchased Services Agreements?

The Cost Savings are in Your Purchased Services Invoice Line-item Details Analyzed to Your Purchased Services Agreement

What Are Purchased Services?

Purchased services is defined as services that a hospital outsources to an outside company or consultant.  Not all hospitals outsource for the same services. Some hospitals outsource their dialysis services while others have a department in house. Some hospitals outsource biomed engineering and others have a full service department. Many hospitals have a hybrid approach and have in house capabilities and outsource as an additional resource to the hospital. This is why you can’t benchmark and compare even “like” hospitals by bed size or net patient revenue and give a benchmarking cost savings opportunity based on a ratio benchmark. Hospitals of the same bed size and revenue utilize their purchased services differently. And if mistakenly compare a hospital that partially outsources their dialysis services to a hospital that fully outsources their dialysis in the same region – you will get a false benchmarking analysis. 

Purchased services just like your supply purchases, requires analysis on a line item basis. Any analysis that doesn’t provide line item detailed a 12 month historical spend analysis will result in not a 100% understanding of your purchases and opportunities for cost savings and utilization improvements will be missed. Resulting in paying more and having a higher cost structure.

What are the Different Approaches to Reviewing Your Purchased Services Agreements for Cost Savings?

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 reasonis our methodology and ideologythat 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 mecategorization 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:

Purchased Services Solutions ComparisonVIE HealthcareTractManagerConductivValifyVizient
Benchmarking Solutions✔️✔️✔️✔️✔️
RFP Services✔️✔️✔️✔️✔️
Negotiation Services✔️✔️✔️✔️✔️
Advanced Spend Categorization Dashboard✔️✔️✔️✔️
Independent from a GPO✔️✔️
Receives Payment/Admin Fees from Vendors✔️✔️✔️
Comprehensive Line Item Cost Savings Assessment and Strategic Roadmap for all Purchased Services Spend (Including Outsourced Physician Service Agreements & Hospital JV Agreements)✔️
Patented Technology that Automates the Management of Purchased Services Expenses on a Line Item Basis✔️
Extract Invoice Line Item Details for Purchased Services Line Item Data Analytics✔️
Real-Time Invoice Monitoring✔️
Real-Time Line Item Price Benchmarking✔️
Contract Performance Services – Real Time Contract Performance Monitoring✔️
Contract and Invoice Database buit from 21 Years of Purchased Services Data✔️
Built on a Mircosoft platform so no software purchase or subscription license is required✔️
Provide Departments with Purchased Services Line Item Utilization for Precise Budgeting✔️
Benchmarking and Pricing Intelligence on Every Purchased Services Dollar a Hospital Spends✔️
Tracks Purchased Services Spend on an Invoice Line Item Basis for a Hospitals Total Purchased Services Spend through OCR and AI Technology✔️

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.
boardroom conversation
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.
Any manual aspect of a technology will leave room for error and missed opportunities. Simply spot checking purchased services invoices is an underperforming tactic. Click To Tweet
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.
IT Support talking through a problem
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™ Is the only patented purchased services technology that provides real purchased services spend analytics. 

Purchased services spend analytics allows 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.

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Lisa Miller

Lisa Miller

Lisa Miller is a consultant, speaker, and podcast host. Her consulting firm, VIE Healthcare, has provided services to over 1,000 hospitals and organizations since 1999.

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A strategy developed from analyzing over 5,000 hospitals

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Discover 15 Effective Cost Savings Strategies That Most Hospitals Can Apply Right Now

Learn how these five principles can help you reduce costs immediately.

VIE Healthcare 15 Effective Cost Savings Strategies Report Cover Image

A strategy developed from analyzing over 5,000 hospitals

A simple step-by-step plan in plain language

Proven processes to organize and motivate your team to find savings

We protect your information