In previous years, 40% to 45% of a hospital’s non-labor operating expense was estimated to be within the categories that encompass purchased services. That number is now as high as 50%, shares Andy Motz, AVP with Valify’s Custom Contracting and Advisory Services.
Factors contributing to the rise in the percentage include the inflationary market providers have dealt with over the last 12 to 18 months. During that time, inflation caused the price of core services to rise anywhere from 9% to 34%. Managing outsourced services has become increasingly costlier due to fuel surcharges, the rising cost of energy and shortages in the labor market.
However, there is some good news. “Within some categories, we are delivering savings to our members, in spite of inflation. These opportunities for nonsalary cost reductions have risen to strategic importance,” says Motz.
Sans the SKU
A purchased service is any service outsourced or contracted for and performed by a third party rather than a hospital’s in-house staff. “We define purchased services as anything that doesn’t have a SKU number,” says Motz. “It’s whatever you need to keep a hospital running—from blood products and reference lab services to elevator maintenance and pest control.”
Additional examples of purchased services include food services management, laundry and linen processing, security, medical and waste management, snow removal, vending services, reprocessing and medical cylinder gas, to name a few.
Why the complexity
Outsourced services are often difficult to manage because they span multiple departments across the entire health system. This means that the decision-making and ongoing management of the contracts is likely decentralized. Adding to that challenge is the complexity of the categories and a lack of consistent operational metrics.
For providers who manage multiple facilities of varying sizes in widespread locations, contracts with local suppliers for these services can hide a lot of wasted spend from potential redundancies and regional price variations.
A lifecycle approach
“Working with suppliers and setting expectations for services through contracted agreements helps to control costs. Supply chain leaders must collaborate with the C-suite and department leaders to initiate and then sustain an ongoing, lifecycle approach to purchased services,” suggests Motz. He offers these best practices:
- Develop and implement processes for understanding spend and contract visibility
- Enlist the support of a categorization tool such as Valify
- Ensure benchmarks are regularly reviewed for high spend categories
- Store all contracts in a centralized location for easy access and visibility
- Prioritize supplier engagement and conversion
- Measure your success by monitoring the correct metrics
As members of HealthTrust, providers have access to a broad portfolio of existing purchased services contracts. HealthTrust can also provide custom sourcing by converting existing supplier relationships to HealthTrust contracts for additional savings and improved terms and conditions.
Valify Solutions Group (VSG), a division of HealthTrust and the first technology-driven group purchasing organization (GPO) dedicated to healthcare purchased services, helps members extract significant value when contracting with outside agencies. Valify’s Advisory Services ensures members get the best rates and realize optimal savings by utilizing two important tools—benchmarking technology and expert-level knowledge of national and regional markets.
“VSG offers members the ability to create a localized contract with a national GPO supplier. It supports members in identifying which supplier works best for them and then negotiates local pricing and individualized terms and service-level requirements,” Motz explains.
Valify’s Advisory Services assists members by:
- Customizing GPO agreements specific to a facility’s needs
- Enhancing the quality of services members receive from outsourced suppliers
- Sharing best practices to ensure members are utilizing services appropriately and in the most cost-effective manner.
Valify has several tools designed to help facilities streamline their purchased services. The spend analysis technology automates spend categorization visibility, while its purchased services assessment (PSA) tool helps facilities comb through their data to find ways to save. Valify receives data updates monthly, which offers facilities the ability to mine for opportunities instead of simply waiting for contracts to expire.
“The PSA enables members to take a proactive approach to managing these categories instead of just reacting to pain points,” says Motz. “There’s never been a better time to analyze your approach to purchased services. While it may have been an area overlooked in the past, the amount of facility spend is now undeniable. And, with significant spend comes the opportunity for savings,” he adds.
Valify: Technology, GPO Portfolio & Advisory Services
Valify offers the first end-to-end purchased services program comprising spend analytics, benchmarking, contract management and advisory services that support sourcing and contract negotiations. Valify helps health system operators realize significant savings on purchased services by leveraging the largest data-driven market intelligence platform of more than $460 billion in total spend, categorized through proprietary machine-learning algorithms to generate benchmarking insights for its members. HealthTrust has licensed Valify technology to support GPO operations to accelerate value to HealthTrust members.
- Subscribers realize an average of 10%–30% savings per category.
- The VSG portfolio consists of $9B in annual contracted spend.
- Five HealthTrust health systems subscribe to Valify to actively save through consolidation of suppliers.
- Facility Support Services
- IT & Telecom Services
- Clinical Services 400 unique categories across seven service lines:
- Financial Services
- HR Services
- Ancillary Services
- Facility Support Services
Drive value in purchased services for your organization by contacting the Valify team today at 972.963.5130 or email@example.com, or by attending one of the two purchased services education sessions at our upcoming HealthTrust University Conference.