Four Keys to Unlock Purchased Services Savings

The COVID-19 pandemic created historic financial pressure for U.S. hospitals and health systems that will reverberate well into the future. According to a new survey, nearly 80 percent of procurement leaders consider operational efficiency and cost reduction their top priorities in 2021.

For providers to thrive in today’s - as well as tomorrow’s - healthcare environment, it’s imperative to pursue strategies that safely reduce costs and generate margin improvement.

One solution providers are turning to for superior savings lies within third-party purchased services.

According to the American Hospital Association, U.S. hospitals spend more than one trillion dollars on annual operating expenses, with purchased services accounting for roughly 36 percent of this total pie.

That means the entire healthcare industry spends over $400 billion on third-party vendor services every year.

While purchased services are both crucial to hospital operations and ripe for savings opportunities, unfortunately, they’re not always top-of-mind. Many times, organizations don’t consider this second-largest controllable operating expense when executing on cost savings initiatives, leaving a multitude of inefficient and wasteful spend on the table.

A Lifecycle Approach to Purchased Services

To achieve purchased services goals, it’s important to understand that meaningful change is not affected one contract at a time. With thousands of suppliers and millions of dollars that impact a provider’s bottom line, the most effective purchased services initiatives require a strategic, programmatic approach.

There is no denying, however, that cleaning up the purchased services space can be a daunting task.

For many providers, third-party spend is highly fragmented, with owners and contracts spread across the organization. In this environment, where does one start?

To break it down, let’s look at four key areas providers should consider when evaluating purchased services - to generate efficiencies, gain control of spend and reap the savings rewards.

1. Spend, Usage and Contract Visibility

Although providers each have an individual path to achieving purchased services savings, they all start at the same place: the data. Understanding current spend is the most important first step to take, and providers can achieve meaningful visibility by combining purchasing data with contract information.

With a comprehensive purchased services platform, providers are equipped with powerful insights and the ability to analyze, benchmark and source competitive contracts among their service providers.

A sophisticated solution has the ability to easily track and measure spend and usage - and can be indexed by supplier, category, service-level terms or contract renewal date. Even more important, the technology can set and manage specific savings targets and oversee contract compliance once new agreements take effect.

Bottom line: In the complex world of purchased services, an integrated platform that leverages real-time data and allows users to quickly garner insights helps providers achieve the strongest results, including cost savings and more efficient operations.

2. Leadership, Staff and Skills

Gaining and maintaining control of an organization’s purchased services spend requires both an enterprise-wide operational shift as well as a cultural one.

For the latter, and when beginning purchased services initiatives, consider:

• Getting C-suite executives engaged and on board with the strategy and process from the start.
• A budget and dedicated staff to manage purchased services.
• Soliciting and incorporating ongoing feedback and a strong value analysis process to ensure all stakeholders have a voice in selecting the most qualified, cost-effective vendors.

In taking these steps, the supply chain can encourage a strong purchased services focus, stakeholder participation and greater collaboration among the collective, cross-department team and decision-makers.

Bottom line: When it comes to organizational and team culture, every health system is different ─ what works for some hospitals may not work for others. However, the Premier team has found that all successful culture change initiatives have a few things in common:

• A clear, incremental action plan that holds everyone accountable
• A continual feedback loop that offers clear communication channels
• An engaged leadership and team (including clinicians)
• A strong governance and technology infrastructure
• Accurate data

3. Supplier Implementation and Engagement

Superior supplier rationalization and engagement ultimately hinges on a solid understanding of the capabilities, capacity and geographic coverage of the supplier pool.

Providers are well-positioned to ensure new vendor implementations are as quick and efficient as possible when they have the following:

• A dedicated team
• Technology
• Processes
• A strong performance improvement infrastructure

For example, with stakeholder consensus building and supplier interactions managed through a unified data analytics platform, supply chain teams have instant access to critical sourcing process information.

Technology platforms that center around nurturing supplier relationships can also reduce the time it takes to move a request from a request for proposal (RFP), to negotiation, to contract awarding. This is accomplished via a simplified, yet comprehensive contracting workflow that automates manual processes, including drafting requests, comparing proposals and narrowing down supplier options.

Bottom line: By capturing stakeholder’s business requirements, RFPs and contract bids all in one place, providers can gain transparency into operational processes and the successes of your purchased services program.

4. Measurement and Metrics

With tight budgets and high expectations, it's more important than ever that supply chain teams set achievable, yet meaningful, goals when it comes to purchased services optimization.

To help set specific, attainable targets, once again enter a central technology platform capable of managing and tracking end-to-end supply chain costs, performance, contract details and related KPIs - all in one place.

Via this central system that manages purchased services performance, supply chain teams can improve processes, including shortening the average length of the contracting lifecycle, developing best-in-class supplier communications standards and improving department performance.

Ongoing measurement against purchased services goals, and the refinements that come with it, also allows providers a leg up in the contracting processes, stakeholder and supplier relationships, and for the financial health of the organization overall.

Bottom line: Providers, and their supply chain teams, are increasingly being asked to demonstrate results. They’ll need accurate and reliable business intelligence to measure and report outcomes accurately.

Where Does Your Program Lie on the Maturity Scale?

Whether an organization is beginning its purchased services journey or has built a more robust and tenured program, purchased services savings can be huge for both the health system and the nation’s healthcare industry as a whole.

With more than 15 years of expertise developing impactful purchased services strategies, Premier’s experts meet providers where they are in their journey - enabling the support and capabilities needed for operational and savings success in this vital area.

Where does your purchased services program lie on the maturity scale? Take this interactive questionnaire to find out.