March 15

Purchased Services Rules That Are Not Ever To Be Broken


Even if you don’t have a comprehensive purchased services management program, every hospital, system, and IDN supply chain department procures purchased services at one time or another. That’s why it is important to adhere to the following four rules about purchased services that are not ever to be broken:

Get the Most Out of Your Purchased Services

Rule #1: Bid/Negotiate Every New Or Renewal Purchased Service Contract. Even though it is tempting to sign on to an existing GPO purchased service contract, it isn’t the most cost-effective tactic you can choose. This is because your GPO contract is designed to fit all sizes and types of healthcare organizations, when your hospital, system, or IDN is unique. A much better way is to bid/negotiate all of your purchased service contracts over $25,000, which will result in much lower total cost than you can achieve with an off-the-shelf contract.

Rule #2: Develop a Statement Of Work And Outcomes For Your Bid Document. In order to ensure that you are getting what you paid for, it is mission critical that you develop a statement of work and outcomes you desire to accompany your bid document. It’s best not to tell your contractor how to do the work required, but what you expect as an outcome of their work. After all, they are the experts, so let them do their job.

Rule #3: Build Performance Incentives Into Your Purchased Service Contracts. Make sure you provide performance goals for your contractors, such as, shared savings plan of 50% on all cost reductions for first year. This way your contractor is always incentivized to provide better outcomes for your healthcare organization.

Rule #4: Don’t Use A Contractor’s Agreement As Your Contract Document. I know it is convenient to use a contractor’s agreement as your own. However, the downside is that all the terms and conditions are in your contractor’s favor. A better way is to attach an addendum to the contract that has your healthcare organization’s favorable terms and conditions that nullifies any conflicting clauses in the contract, and adds your required terms and conditions.

Rules That Put You in Control

It’s been our observation that purchased service contract expenditures are equal to or greater than your supply expense contracts. Therefore, it only makes good sense to have rules to go by when addressing these costly contracts. Hopefully, these four rules will be a good starting point for your own purchased services playbook that will put you in control of these multimillion-dollar annual purchases.

P.S. If you’d like to have more ideas like these, go to for a FREE subscription of our purchased services magazine.

Below are some similar articles that you may find interesting. 

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