June 8

5 Key Elements to Improve Your Hospital’s Performance-Based Purchased Service Contracts


As more and more healthcare organizations have decided to enhance their purchased service contract (PSC) performance, we thought it would be timely to discuss how to write “Performance-Based Statements of Work” (a detailed overview of purchased service requirements in all dimensions) to optimize value and increase savings on these contracts.

Why, you might ask, is this important? Purchased services don’t fit naturally into your strategic sourcing bidding protocols since they aren’t off-the-shelf commodities. Each PSC is unique to your healthcare organization and therefore needs to be treated as such. The best way we know of to do so is with a carefully crafted “Performance-Based Statement of Work” to measure, monitor, and manage your contractor’s performance. With this said, here are 5 key elements to include in any “Performance-Based Statement of Work” to guide you through this process:

1. Performance Objectives: What do you want to accomplish as an outcome of your PSC? An example in a laundry processing contract would be: On time, on budget, hotel quality linen service five days a week. This way you begin with the end in mind with your performance objectives, which makes it easier to write your PSC terms and conditions.

2. Required Service, Task, or Deliverable: This is the nuts and bolts of your PSC agreement: The who, what, where, and how the service is to be performed and then delivered. This could be accomplished in one paragraph, one page, or a dozen pages. It all depends on the sophistication of the service.

3. Performance Standard: What is missing in most PSCs is a standard(s) to hold your contractors’ accountable for their work. It could be error rates, accuracy rates, staying within quoted costs, downtime, etc. Whatever you decide on, make sure that it is measurable!

4. Method of Surveillance: What is inspected usually happens, so it is your job to write into your purchased service contract your measurement tool(s) such as contractor monthly activity report, monthly inspections, random samples, etc., to avoid any surprises or service quality issues.

5. Positive or Negative Incentives: Everyone, including your contractors, work best when they have either a positive or negative incentive built into their work plan, which can be monetary or non-monetary in nature. For instance, you could include a 5% annual bonus into your contract language if your contractor is under budget by 15%. Or you can incorporate into your PSC a penalty of 2% for every 1% they over budget for any given year.

There you have it, a five-point guide to writing a “Performance-Based Statement of Work” that will provide you with the purchased services you desire at the performance you require and built-in incentives to get your service work done right the first time.

Below are some similar articles that you may find interesting.

Price Isn’t the Only Variable in the Total Cost of Purchased Service Ownership Formula

Think Strategically About Purchased Services To Save Even More

Develop A Strategic Purchased Service Plan to Achieve Maximum Results

Request Demo of SVAH’s VA and Utilization Tools


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