July 12

3 Reasons Purchased Services Management Is Crucial To Improving Your Healthcare Organization’s Operating Margin


I would bet that everyone in supply chain circles knows what purchased services contracts (PSC) are, but do they know how crucial they are to effectively manage and improve your healthcare organization’s operating margin? With this said, here are three reasons why this function is mission critical:

1. Most Organizations Purchased Services Contract Expenses Are Equal To Or Greater Than Their Supply Expenses. I know that most supply chain professionals focus their savings efforts on supply costs. Yet, their purchased services’ costs could be even higher than their supply expenses’ costs. That’s the #1 reason why establishing an organization-wide Purchased Services Management System under supply chain is crucial for your healthcare organization’s financial health.

2. On Average, 11% to 18% Is Available In New PSC Savings If Analyzed Effectively. With inflation heading towards double-digits this year, there is no better way to fight your PSC’s price increases than to wring the towel dry on your PSC costs by vetting them more effectively. But savings won’t happen unless you centralize your PSCs under supply chain to be professionally managed, monitored, and controlled.

3. Purchased Services Savings Go Right To Your Healthcare Organization’s Bottom Line. If you save $1,000 on a purchased service contract, 100% of that savings goes directly to your hospital, system, or IDN’s bottom line as opposed to generating $1,000 in new revenue that needs to be discounted 10-20% or more for the labor, supplies, and overhead employed to generate the revenue before it hits your healthcare organization’s bottom line.

I’m sorry to report that purchased services aren’t universally under the purview of supply chain professionals at most hospitals. Generally, PSCs are outsourced to their hospital’s department heads and managers to manage, monitor, and control. However, considering the benefits of establishing a Purchased Services Management System under supply chain is what more progressive healthcare organizations are doing every year. Is this the situation at your healthcare organization?

P.S. For more information like this, sign up for a FREE subscription to Healthcare Purchased Services Magazine to receive advanced strategies and best practices in purchased services management right in your inbox.

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cost management, healthcare organization, healthcare supply chain, hospital, hospital supply chain, IDN, purchased services, purchased services contracts

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