January 24

Purchased Services Management Mistakes That Can Wreak Havoc At Your Healthcare Organization


Even if you don’t have an organization-wide Purchased Services Management Program (PSMP), we all deal with purchased services on a frequent basis. By not following these three basic principles, you can wreak havoc at your healthcare organization:

1. Outsourcing Your PSMP to Your Department Heads: Too often, we see healthcare organizations relying on their department heads to vet, negotiate, and even sign their own department’s purchased services contracts. This is a recipe for disaster due to legal entanglements, vendor biases, and runaway costs. For example, in one hospital we worked with we discovered that a department head signed a flawed multiyear contract without a cancellation clause. Consequently, this left supply chain no option but to continue to pay this vendor knowing that they were giving away big dollars month in and month out.

2. Not Employing KPI Benchmarking with Your Purchased Services Contracts: You never know where you stand with your purchased services contract renewals if you don’t employ KPI benchmarking to determine the target range for your bid/negotiations on your contracts. For example, we performed a KPI benchmark on a new laundry/linen contract for one of our clients and uncovered that they had a savings opportunity of $338K in utilization savings. Most organizations look at the price at the pump or cost per pound but not the utilization (cost per patient day) which is the real volume indicator. The client agreed that they never would have known that savings range was available on this contract without a KPI measurement.

3. Not Bidding Your Purchased Services Contracts: There is a tendency in our discipline to jump on an off-the-shelf GPO purchased services contracts for the purpose of convenience. However, your organization is unique and can increase your savings multiple times by bidding on your purchased services contracts with an annual spend of $25,000 or more. This one strategy could yield an additional 15% to 25% more in savings per purchased services contract.

One of the last areas of supply chain savings is your purchased services contracts. However, you need to be organized to save with an organization-wide Purchased Services Management Program to be truly effective. So, be sure to include these three principles in your PSMP to avoid creating havoc at your healthcare organization. It will make your contract management job a whole lot easier.

P.S. If you like these tips, visit www.purchasedservicesmagazine.com for even more timely information on how to manage, sustain, and control your Purchased Services Management Program.

Below are some similar articles that you may find interesting. 

Clinical Supply Utilization Management Best Practices To Close The Gap In Supply Chain Savings

3 Proofs That KPIs Really Will Work To Improve Your Healthcare Supply Chain Performance

Get the Most Out of Savings Validation

Request Demo of SVAH’s Value Analysis and Utilization Tools


GPO, healthcare supply chain, hospital supply chain, purchased service, purchased services, purchased services contracts, purchased services management, supply chain

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