Robust Contract Management Is Vital for Cost Reduction in Healthcare
The most common concerns I hear when I speak to healthcare leaders are around contract management. That might be a contract that needs reviewing or concerns about benchmarking. Vendor negotiations are another issue for hospitals. At VIE, we often act as a buffer between the hospital and vendors to preserve their relationships. It’s a smart strategic decision for healthcare leaders.
Hospitals Need To Be Aware of the Warning Signs Around Spiraling Costs
Some of these signs include expenses increasing across each department, budget predictions being off, or reduced profitability in areas including surgical cases and diagnostic tests. Another warning sign is paying a higher price for implants or physician equipment where there are only minor changes to components. In contract management red flags include vendors increasing their prices. Directors of finance are the first to notice these signs.
Health Systems Can’t Put Purchased Services Spend in a Box
Physician Preference Items (PPIs) and purchased services are two major areas of non-labor spend. There’s increased focus on purchased services cost reduction but the approach is wrong. You can’t put purchased services in a box because all the spend is in the line-item details of your invoices. Hospitals need to embrace best practice, that means going beyond categorization and ratio benchmarking. A line-item approach is a must.
GPOs don’t always offer the best pricing
Hospitals have the power to self-contract. When GPOs were established, they were intended to help hospitals get better pricing and were granted Safe Harbor protection. While GPOs can offer value where they aggregate volume, there’s a large area of spend where hospitals should be self-contracting, such as PPIs and purchased services. Implementing a self-contracting strategy is a more cost-effective option in these key areas.