Dig into Your Purchased Services Spend

Analyze your spend and contracts to reduce leakage and save money.

Analyze your spend and contracts to reduce leakage and save money.

Healthcare organizations must control their non-labor spend to combat shrinking margins due to COVID-19. Purchased services—such as waste management, blood services, and elevator maintenance— account for up to 25%–30% of a hospital’s non-labor costs. By analyzing your organization’s purchased services contracts and renegotiating vendor agreements across these categories, you can reduce these costs by about 10%–30%.

Purchased services contracts are difficult to track and analyze since they are typically negotiated by staff in multiple departments and stored in filing cabinets throughout your organization. When they do occur, analyses often reveal overlapping contracts with multiple vendors, contracts for un- or underutilized services, and a lack of benchmarking. These problems may be costing your organization millions of dollars every year.

Follow these strategies to prevent leakage and save money on your purchased services:

1. Consolidate suppliers to reduce contract overlap.

If different facilities in your healthcare organization use different vendors for the same service, you’re probably spending too much. Reducing the number of vendors—and contracts—usually results in cost savings through increased negotiation leverage and volume discounts. Analyze your contracts to identify duplicative contracts and pinpoint those that cover the same service with more favorable terms. While you’re at it, compare your invoices to agreed contract terms to be sure your vendors are not overcharging you. Based on this information, consolidate vendors so you’re working with one or two suppliers instead of many.

2. Cancel contracts for unutilized services.

Is your organization still paying for services you no longer use? If your contracts auto-renew, you may not be aware of this leakage. To reduce wasteful spending, start by analyzing your purchased services spend to see where your money is going. Then conduct a utilization audit to evaluate what services you currently need. You may not need certain print and fax services if your administrative staff are working remotely. You should negotiate a “right size” correction with your vendor to avoid overpaying for services you aren’t using.

3. Use price benchmarking data.

Analyze your quotes and contracts to identify the best pricing and contract terms. Compare the quoted and contracted prices to regional and national benchmarks to determine whether the prices are competitive. Be sure to compare prices across sister facilities within your organization. Use the benchmarking data to negotiate a better deal. Challenge vendors to match the lowest price and to grant that discounted price across all entities.

RELATED WHITE PAPER: Top 10 Negotiation Strategies for Healthcare Providers

Analyzing your purchased services spend data is easier said than done, particularly when your supply chain staff are scrambling to meet the demands of COVID-19. TractManager’s Spend Management experts analyze your non-labor spend, contracts, and quotes, using benchmarking data for 1,500+ services categories to help you achieve 10%–30% average savings for a single purchased services category. To learn more, read our white paper titled “Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic.”

Author:

Dawn Plimmer

Senior Manager, Purchased Services

Dawn leads Account team for Purchased Services. She and her team consult with clients to strategically manage their spend.

Related Blogs:

Related Resources:

TractManager’s Purchased Services program helped a health system in the Northeast save $11M on imaging and biomedical service agreements.

TractManager’s Purchased Services program helped a health system in the Northeast save $11M on imaging and biomedical service agreements.

The Challenge: The medical equipment market in the U.S. exceeds $8 billion a year. Providing service and maintenance for the complex equipment found in today’s hospitals is an expensive proposition. After spending millions of dollars on sophisticated imaging equipment …

Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic

Vendor relationships need to be healthy, professional, and transparent to ensure you’re getting the best pricing and contract terms. Discover ways to enhance your relationships.

Share This