September 23

Three Proven Tips to Lowering Your Hospital’s Purchased Service Contract Cost

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I’m hearing more and more chatter in hospital supply chain circles that purchased service contracts are becoming more of a priority to reduce hospital, system, and IDNs’ operating expenses. While this is a good thing, I’m also hearing that many supply chain professionals don’t know where to get started when venturing into this newfound territory. So with this in mind, here are three proven tips and tricks to move you in the right direction:

1. Write Work Specifications: The most important tip I can give you is to write your own work specifications for any new or renewal purchased service contract that comes across your desk. If you accept the vendor’s contract as is, you are probably buying services that you don’t need or want. For example, one of our clients discovered they had been paying, for years, for concierge services in their food service contract that they didn’t know existed, thereby costing them $100,000 a year. This oversight has now been corrected, since this client now writes their own specs for their purchased service contracts without fail.

2. Include Performance Standards: Just because you have a signed service contract with a vendor doesn’t mean they will make their best efforts to improve your situation, since most contracts read that the contractor will meet or exceed national standards. This statement isn’t enough to ensure the highest service quality for your hospital. To have failsafe agreements you must include your own performance standards, such as, turnover will not exceed three percent annually or contractor will assume all costs of recruiting and retraining for new employees. Standards and oversight are the only way to prevent your contractors from giving you below average service quality.

3. Bid, then Negotiate a Contract: There is a tendency to negotiate purchased service contracts with a preferred vendor. Let me caution you against this questionable practice, since bidding is the only way I know of to keep your vendors honest, to gain needed competitive intelligence, and to obtain the lowest possible cost. Naturally, it makes good business sense to negotiate after the bid to ensure all of the details of your contract are in your favor, but not beforehand.  

If you are not responsible for your hospital, system, or IDN’s purchased service contracts at the present time, it is most likely that you will be in the very near future. Therefore, you might want to save these ideas in your intelligence files. However, if you are responsible for your hospital’s purchased service contracts today, these three tips and tricks will go a long way to guarantee that you won’t miss some big steps in getting your new and renewal purchased service contracts right the first time. 


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9 Things to Negotiate with Your Purchased Service Contracts Other Than Price

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