7 Purchased Service Best Practices that Positively Impact Your Bottom Line

Robert T. Yokl, President, SVAH Solutions

Purchased service management (PSM) is a relatively new supply chain discipline. However, based on our 32-year PSM experience, we have observed the following seven essential PSM best practices that positively impact your bottom line:

1. Ensure every purchased service (PS) contract is bid/negotiated: Even if your GPO has a PS national contract in their portfolio, this is just a benchmark price for you. Only by bidding/negotiating a new or renewal PS contract can you obtain the lowest price possible in your region of the country.

2. Attack older, ongoing, or automatic renewal PS contracts first: These are the PS contracts that have been on your hospital, system, or IDN’s books for years, but haven’t been put under the microscope. A quick review could save you thousands of dollars annually.

3. Eliminate unneeded and unwanted functions, features, and services: It is good to start with a blank piece of paper to write your PS contract’s specifications, since you don’t need or want everything your contractor might be offering you. For example, it took years before one of our clients realized that they were paying for 24/7 food service (e.g., patient ordering a sandwich at midnight) for their patients from their food service company. By eliminating this unwanted service, our client saved thousands of dollars annually on their food service contract.

4. Track, trend, and benchmark all of your purchased services: Lowering your purchased service cost isn’t always about price at the pump. More and more, it’s about lowering the cost per gallon or utilization cost. This is accomplished by establishing metrics (e.g., laundry/linen cost per adjusted patient day) for each of your PS contracts, then tracking, trending, and benchmarking your PS contracts against your peers’. This new protocol could yield you 10x greater savings than price alone.

5. Complement managers with low PS total cost vs. peers: PSM isn’t just about statistics or measurements. It’s also about motivating your managers to keep their PS cost at the lowest possible levels. Accordingly, complementing, recognizing, and rewarding these managers is recommended, since these are the managers who make you look good.

6. Survey your PS contract customers on their experience with their contractors before renewal of any contract: Always survey all of your PS contract customers to obtain their feedback before renewing their contracts. You will often uncover contract compliance, service, and quality issues that need to be addressed under your new PS contract (e.g., contractor not conducting four PMs as agreed to in contract or not  returning phone calls promptly).

7. Start your PS contract renewal process 90 to 120 days from its renewal date: It takes considerable time to do a thorough job of surveying your customers, updating specifications, benchmarking your current contract, and then bidding and negotiating a new contract. That’s why most healthcare organizations start their PS renewal contract process 90 to 120 days in advance.

These seven purchased service management best practices have evolved, matured, and have been codified by progressive hospitals, systems, and IDNs over the last decade. Therefore, you can consider them battle tested and ready to be deployed at your own healthcare organization without missing a beat!