January 25

Purchased Service Contracts: Customization Is Key


We would all like to think that we can cost effectively buy anything and everything through our group purchasing organizations (GPO), but the truth of the matter is that purchased service contracts (PSC) are better suited to be bid and negotiated locally vs. nationally. This is because of the uniqueness of our healthcare organization’s service requirements.

Case in point! One of our client’s copier service cost was $356,932 annually over our regional benchmarks. This fact motivated our client to search out new and better ways to provide this mission critical service. After some research, our client realized that the answer to his costly challenge wasn’t to piggyback on GPO national contracts, but to instead conduct a thorough investigation of their entire print management requirements and then customize a service contract to meet their exact requirements.

Customize Your Purchased Service Contracts For Better Outcomes

Fast forward three months, and our client’s investigation revealed that they had too many copiers and printers house-wide, many for departmental use and many on employees’ desks. By eliminating and consolidating all of their copier and print services, our client estimated they could save $252,392 annually. Conversely, if our client didn’t customize their service requirements prior to signing a new contract they would have received excellent pricing for their perceived needs but would have been way off the mark on the total cost of unified print and copier management services.

The price at the pump for your purchased services is very important, but what is even more important is the utilization or running cost of every purchased service contract that you are buying. We have found that a typical 350-bed hospital can have contract utilization misalignments (or wasteful and inefficient consumption, misuse, misapplication, or value mismatch) in the range of $1.5 million dollars, while their pricing for these same contracts are in the 25th percentile of all hospitals we have worked with for the last 25 years. So, the problem wasn’t the price of their purchased service contracts, but the utilization or running cost of them.

Value Analysis Analytics: The New Science Of Savings

We have found that if you use Value Analysis Analytics which has its foundation in activity-based costing, to measure your purchased service contract utilization over time, you would be amazed at how many new savings opportunities will appear right before your eyes. For instance, by applying our Value Analysis Analytics to a client’s blood cost, we recently discovered that our client’s utilization was $683,222 over our regional metrics for similar hospitals. This is the kind of business intelligence you will need, too, if you are serious about lowering your purchased service contract cost. That’s why customization is the key for cost effective purchased service contracts.

P.S. If you would like more purchased service savings ideas, just e-mail  [email protected] for your copy of our “How to Rein in Your Purchased Service Expenses Before They Damage Your Bottom Line” e-book.

Below are some similar articles that you may find interesting. 

Healthcare Supply Chain Metrics and KPIs for Successful Cost Management

Healthcare Supply Chain Best Practices To Reduce Your Supply Spend In 2022

Podcast 63 – The Worst Number in the Healthcare Supply Chain Savings Game is One

Request Demo of SVAH’s Value Analysis and Utilization Tools


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