Best Practices to Help Optimize Purchased Services Spend

by Chris Gormley, CEO, Medpricer and Marshall Busko, Senior Director, Information Technology Solutions, Intalere

U.S. healthcare systems must reduce their total expenditures by 15-20 percent annually to keep up with reductions in Medicare reimbursements. While labor is the highest dollar expenditure for hospitals at 50-60 percent of revenue, systems don’t want to reduce staff levels to make up this gap. The second highest hospital expenditure at 30-40 percent of revenue is purchased goods and services which should be a key cost-cutting focus area.

Many providers are asking themselves what they can do in evaluating all possible savings options. Many are recognizing that Purchased Services offers additional potential beyond Med-Surg and can cut spend by 10 percent just by gaining insights into their Purchased Services spend. In addition, when they combine spend visibility with strategic sourcing programs, they can cut Purchased Services spend by an average of 24 percent. For most sourcing teams, extending their sourcing capacity with technology and the right additional resources is the key to efficiently optimizing Purchased Services.

What are three best practices that can help optimize your facility’s Purchased Services spend?

Gain insights into spend by collecting the right data. Most healthcare sourcing teams have incomplete, inaccurate or unfocused Purchased Services data. They find there are too many spend categories across too many vendors and facilities to keep an accurate and current set of contract terms, supplier data and pricing. The general ledger, which is where most sourcing teams start, is often not coded correctly, resulting in mischaracterized and missing spend data. To gather the additional information needed, they endure a slow painful process of collecting contract information internally.

It is best to start with a thorough Purchased Services taxonomy of categories, gathered from accounts payable data instead of the general ledger. It includes category information based on supplier name-category match.

Execute a sourcing strategy that drives high impact results. Once sourcing teams know their spend, they can set realistic savings targets. By understanding and compiling spend contract terms and termination dates, they can visualize when they’ll be able to realize savings goals. In order to develop effective strategies, they’ll also need input from stakeholders and additional information about categories and suppliers.

Strategic sourcing teams think critically about how to implement an optimized Purchased Services contract process. To do that, they execute a tightly managed process on a category-by-category basis that engages both internal stakeholders and external vendors. The key is engaging cross-functional teams to define new sourcing relationships, prices and contract terms.

Extend your sourcing capacity. Purchased Services spend management requires extended team resources to optimize effectively. Many healthcare organizations are embracing new ways of thinking and looking for proactive ways to leverage their existing team to increase their capacity and source more categories. They are using cloud-based technology solutions combined with third-party sourcing support help desks to accelerate data collection, analysis and negotiation. The resulting savings potential from Purchased Services can relieve very real budgetary pressures caused by decreasing reimbursement rates.

To learn more, download the white paper, Three Essential Best Practices to Help Optimize Purchased Services Spend.

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