Are You in Control of Your Hospital’s Purchased Services?

Are You in Control of Your Hospital's Purchased Services?

Robert T. Yokl, President, SVAH Solutions

It’s my guess that out of the 6,090 hospitals in the United States, 30% to 50% of them aren’t effectively controlled by their supply chain departments. This creates an opportunity to open up a whole new source of savings (equal or greater than supply expenses) for those “wait and see” supply chain executives. Isn’t it time to rethink your supply chain mission?

6 Reasons Why

There are a number of reasons why supply chain departments, as I see it, are not effectively managing and controlling all of their healthcare organization’s purchased service contracts as follows:

1. Don’t Have Enough Resources to Do So: To have an effective purchased services contract program, your supply chain department will need, I estimate, one FTE per ten million contracted dollars dedicated to this task. However, your return-on-investment by doing so is, at minimum, 10:1 in new savings. Just as important, you will immediately reduce your healthcare organization’s liability by 100-fold. This is because contract professionals will now be appointed to this assignment vs. your untrained department heads. It’s really a no brainer decision!

2. Won’t Be Compensated for Doing So: Supply chain professionals’ plates are already full, and many feel they won’t be compensated for taking on the new responsibility of purchased service contracts. I beg to differ! If you can show your senior management that you can increase their bottom line by taking on purchased services, I’m sure they will compensate you at bonus time or at your next review. On the other hand, don’t let consultants be hired to do your contracting job, thus guaranteeing that they will receive the compensation you were hoping to obtain for yourself.

3. Aren’t Directed to Do So by Senior Management: Too often, your senior management don’t know what they don’t know. Therefore, it is your job to enlighten them about the benefits of reining in their healthcare organization’s purchased services’ cost. That’s why they hired you. You are their in-house expert in this area of your hospital, system, or IDN’s operations – not them.

4. Department Heads and Managers Are Still in Control: It is always easier to let old habits continue, but at the same time it could be dangerous to your hospital, system, or IDN’s bottom line. It’s been our experience, when a healthcare organization delegates its purchased services contract management to its department heads and managers, that it is losing millions of dollars annually. It also leaves the door wide-open to fraud and abuse! So, why would you want to continue this disastrous practice?

5. No Reporting Systems to Manage and Control Purchased Services: Yes, purchased services require a new database and analytics to capture and report on the millions of contract dollars your healthcare organization spends annually. However, the cost is minuscule compared to your return on investment on cost savings.

6. No Benchmarking to Measure Your Purchased Services’ Contract Performance: Price savings should be just one component of your purchased service cost reduction strategy. Your bigger cost savings comes from comparing the best practices (benchmarking) of your peers to your own. This can be accomplished by establishing or contracting for peer purchased services benchmarks for your cohort group. This way you can attack your total purchased services contracting cost, not just the price at the pump.

Last Bastion

We all are looking to increase our savings yields in any given year, so why aren’t all supply chain professionals attacking their purchased services’ cost? Some of the answers are listed above but let me know ([email protected]) if you can think of any others. To summarize, purchased service contracts are the last bastion of non-labor savings for healthcare organizations. Therefore, we must look for and eliminate all of the reasons for supply chain not managing them effectively until it is considered a best practice at all hospitals, systems, and IDNs.