Are you taking advantage of potential savings opportunities in your purchased services contracts the same way you do in other areas?
Tackling purchased services can be tough, but focusing on your spend and discovering savings can breathe new life into your bottom line.
When people think about purchased services within a hospital, the first few areas they think about are departments that typically get outsourced like Housekeeping, Food Services, and Clinical Engineering. Today, I will spend some time discussing the decision process of one of these big 3 spend areas: Food Services.
You paid somewhere between $50,000 and $150,000 for a consultant (or GPO) to complete a purchased services assessment for your health system. It most likely took them 6-12 weeks to complete, and they identified millions of dollars in savings opportunities. Congratulations! Now what?
Since I have the pleasure of meeting with a few different healthcare executives each week regarding purchased services, I have the unique opportunity to hear what’s going on in the real world. One of the biggest reasons our company is being brought in is due to a new trend VPs and Directors of Supply Chain/Procurement are facing. They are being tasked with finding millions of dollars of savings within their purchased services categories.
Not only that, the C-suite (and most likely the board) is not allowing these VPs and Directors to simply say, Yes, sir/ma’am and then scramble to figure out where to find the savings later on. They are requiring them to build a specific work plan on how they are going to achieve it.
An article published yesterday by Modern Healthcare forecasts growth in healthcare hiring this year in many healthcare provider segments, but not in acute care. With diminishing revenues and a shift in patient preferences towards outpatient facilities and ambulatory surgery centers, acute care facilities will either freeze hiring or consider small layoffs. At Valify we expect hospitals to take additional steps to address their shrinking margins by identifying outsourcing opportunities, placing pressure on procurement teams to get ahead of the curve in identifying and evaluating these purchased services.
Most supply chain leaders are being asked to contract for purchased services, but are they up to the task? Although some purchased services categories are easy to understand (medical gas, EVS distribution, etc.), most require a completely different skill set or a unique process that is far removed from traditional materials management projects.
Well, it’s the beginning of a new year and you are either starting a new fiscal year or partially through your 2015 budget already. For those that are just starting a new budget cycle, I am wondering how you are currently prioritizing what your team will work on this year. How are you going to reach your purchased services savings goal? If you’re like my previous employers, your process is to simply divide your team’s contracting time based on which department is complaining the most. This is also called the squeaky wheel approach. This is an effective method if your primary goal is to keep people off your back, but if you want to maximize your team’s efficiency and get the biggest bang for your buck, you will need to act more strategically this year.
With purchased services categories representing up to 45% of your organization’s non-labor expenses, you should be monitoring your spend the same way you do with medical and surgical products. I only know of three or four health systems that are doing this right now. One of the major problems is that many supply chain leaders believe their GPO is monitoring this information for them. Although there are other ways to maximize your relationship with your GPO, at this time, the GPOs are not able to provide the service of monitoring purchased services spend because they don’t have the knowledge or necessary technology to handle this type of data.
Everyone has a different definition of what falls under the broad description of purchased services. This is actually a big issue within the healthcare industry because this inconsistency makes it very difficult to measure the exact size of the market. If the entire industry truly understood that purchased services
