We would all like to think that we have total control over all our non-labor expenses, yet I can say emphatically that this just isn’t true. One big expense category that has been universally neglected is purchased services. It’s not even on most healthcare organizations’ radar screens! Yes, this statement is factually true! We, as an industry, haven’t been managing and controlling our purchased service contracts, from elevator maintenance to waste management services. Countless hospitals, systems, and IDNs have service contracts with a dollar value equal to or greater than their supply expenses. The good news is that we have found this category of purchase to be a new, unclaimed goldmine for healthcare organizations. To ensure your healthcare organization’s continuing financial health, you must pay more attention to these elusive expenses. Best of all, new breakthrough concepts will help you move forward to even more savings in this category of purchase than you thought possible.
The Final Piece of the Puzzle
Now that most hospitals, systems, and IDNs’ prices are under control, standardization is complete, and utilization is on most healthcare organizations’ radar screens, the remaining piece of the non-labor expense puzzle is to effectively manage and control your purchased service spend. By doing so, your healthcare organization can save 11% to 18% on this spend category. From our empirical experience, this spend category is the easiest way to save money, since you generally only need to convince a few department heads and managers to make a change in their practices as opposed to hundreds of individuals in other categories of spend.
How to Attack These Big Savings
To attack these savings, you will first need to broaden your supply chain department’s scope and authority to include all purchased service contracts. You can build a case for change by showing your C-suite how much your healthcare organization is spending on this category of spend and what the savings potential (11% to 18%) is if you were to put your supply chain manager in charge of this spend category.
Second, you need to centralize all of your healthcare organization’s purchased service contract files and their administration under your supply chain management department. If the workload justifies it, you will need to hire a contract administrator to manage, control, analyze, bid, or negotiate these contracts. Don’t worry, they will pay for themselves in three months with huge savings!
Third, you will also need a benchmarking power tool to ensure that your purchased service contract’s total lifecycle costs are within acceptable limits. Otherwise, how would you know if there are savings opportunities if you don’t quantify them and have a roadmap to start saving?
Lastly, you will need to trend and track the performance of your contractors to identify spikes in their utilization costs and to ensure that they are conforming to your requirements.
Deep Dark Secret
It is a deep dark secret that many healthcare organizations don’t have purchased service spend up on their radar screens, and in many instances, it is their biggest supply chain expense category. It is now time to get control of these liabilities where there is the greatest legal and regulatory risk exposure for your healthcare organization. At the same time, you will need to wring the towel dry in savings that are ripe for harvesting.
If you don’t have a power tool to manage and control your purchased service spend, it is almost impossible for you to totally control the millions of dollars you are now spending on your purchased service categories annually. However, with an advanced power tool you can almost guarantee that you will be able to:
1. Capture all your purchased service spend in one easy-to-use, intuitive, and secure archive.
2. Benchmark all of your purchased services to quickly uncover your best savings opportunities in the range of 11% to 18%.
3.Track and trend the performance of your contractors, against predetermined or historical standards, to identify spikes in your utilization cost.
4. Manage all of your purchased service contract details (who, what, when, where, and how much) so you never miss a renewal date again.
5. Select from a library of purchased service best practices to guide you through the process of reducing your price, standardization, and utilization costs on all of your purchased services.
These are just a few of the benefits your healthcare organization will receive by putting a full court press on managing and controlling this undervalued expense category.
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