This article was written by Bryan Covert.
The first step to achieve meaningful costs savings is to identify the initial opportunity, often helped by understanding data sources in healthcare.
All healthcare organizations work with an overwhelming number of purchased services vendors, each one with their own unique nuances and contracting history.
Identifying cost saving opportunities can therefore be especially difficult in purchased services spend.
- Where do you begin to identify opportunity?
- How can you be sure that the information you have is correct?
- What do you do to confirm that your data is comprehensive of the entire organization?
These are simple questions, but unfortunately, a simple solution is not always immediately available. What makes it more difficult is that, most of the time, organizations in growth mode are chasing a moving target.
At VIE Healthcare Consulting, we recommend a three-step process:
Step One: Identify areas for cost savings
Identify the areas that your organization will target for costs savings within purchased services. At a bare minimum we recommend:
- Outlining your purchased service contract term dates and language.
- Be prepared to renegotiate these agreements as they come to term.
Optimally, health care systems should create an internal process to review current costs against best in class pricing on a continuous basis.
Step Two: Obtain accurate data
Once you have determined that your organization will pursue a purchased services cost reduction initiative, where is the first place you turn to for data? There are three common sources for data.
Your Internal Reporting Systems: For a physician preference item such as a pacemaker, line item utilization is typically captured within your organizations purchasing and materials systems as well as through your reimbursement submissions. In purchased services, this reporting is carried in a blanket purchase order, offering very limited detailed information. This can be a great place to start to quantify how much you are spending with a vendor, and how that has trended year to year, but will not provide you with the information you need to make informative decisions.
Your Vendor: Many organizations rely solely on the vendor to provide data. This method may be the quickest, however, now you are dependent on a biased outside source for the most crucial element of your analysis. For example, how can you be sure that the vendor included all charges, all locations, and that the rates reflect what was actually paid? In many instances, companies with multiple service channels segregate their reporting. One sales rep may not have access to all reporting across the company’s entire portfolio. Relying on vendor reporting may give you an incomplete or inaccurate account of your organizations purchases.
The most accurate place to obtain purchased service data is your invoice. Click To Tweet
Your Invoice: The most accurate place to obtain purchased service data is your own invoice. Your invoice details exactly what was charged and supports exactly what was paid, but this method presents its own set of challenges.
The first is to ensure you are identifying all locations and collecting all of the invoices. This becomes more difficult if your organization is expanding.
Purchased service agreements such as record storage are used throughout your entire organization, inclusive of business offices and physician practices. AP may be segregated on these services across your organization as well.
Once you have the hard copy invoices in hand, the challenge is to organize the information into a usable format. Many of these purchased services such as dietary and linen, provide each location with dozens of detailed pages each month.
Sometimes, they provide just a summary bill with no line item details at all. Your healthcare system may need to utilize a full-time resource to manually enter this information and make it accessible.
Step Three: Utilize all three data sources
So far we have identified three sources of data that can be utilized for your cost savings analysis. Each of these sources has limitations. The best way to ensure that you have a clear picture of all purchases is to utilize all three.
AP extract data and materials management data can give you great insight into which vendors have the highest potential for savings. It also gives you a baseline to check against your data collection ensuring that your analysis makes sense.
For instance, does your reporting match your total dollars paid? If it does not, you could be missing accounts or entire service lines with a vendor.
Vendor provided reporting and data pulled internally from your invoice can be used in comparison. This is a great place to check for account numbers and locations. Are there account numbers on the invoice that are not on the vendor reporting? Are there locations on vendor reporting that are not on the invoice?
Utilizing all three data sources will give you a complete picture of your purchased services spend that can be mapped back to the contracts. From here, it is easy to see if accounts are accessing incorrect pricing, or if there are extraneous fees that should not be included.
Without referencing all three sources, you run the risk of overlooking non-contracted locations, superficial fees, or an entire product line that can be pulled in to negotiate from a stronger position. For example, if your organization is reviewing costs on medical waste pickup, you may miss an opportunity to maximize savings by pulling in sharps removal and pharmaceutical waste.
For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at [email protected].