The Devil is in the Details: Introducing Contract Spot Check
December 26th, 2019
According to Modern Healthcare, hospitals overspend on purchased services by more than $39 billion every year. Yet from an outsider’s perspective, spend management in healthcare seems to occur at 15,000 feet. It requires a macro view of things, after all, to draw meaningful conclusions from bulk contract data.
But after the big-picture decisions have been made — which spend categories to prioritize, suppliers to consolidate, and service-level agreements to renegotiate — that high-flying strategy meets ground-level reality. All too often, the result can be missed opportunities.
In order to realize lofty savings targets, purchasing departments must closely audit individual contracts for key details. Price escalation clauses, volume discount thresholds, auto-renewal dates, and comparison to local and national cost benchmarks are all essential to the successful implementation of any spend management plan.
This means building timely evaluation of key terms into your contract and spend management processes. The ability to “spot check” an individual contract during critical moments can act as a last line of defense against undue stakeholder influence, aggressive supplier negotiation tactics, or errors in initial price benchmark information that simply slip through the cracks.
Contract Spot Check: What to Look for
- An easy way to compare discrete contract rates to industry averages.
- The ability to quickly identify service lines where negotiations are needed.
- Estimate savings based upon service line, unit of measure, and national benchmarks.
- A robust local and national database of spending contracts to ensure that comparisons are accurate.
- One-click access to the contract, preferably within an automated contract management platform.
“Spend analysis is a great way to identify possible opportunities,” says Lyle Ellerbach, Vice President of Spend Analytics at TractManager. “But until you can actually benchmark your actual contract service prices, those opportunities are just possibilities. Our Spot Check capability can vet opportunities real-time, weeding out categories that look good on paper but won’t yield the results you expected.”
Unlike many physical devices and medical technologies, outsourced services aren’t delivered to a loading dock by one of a few well-entrenched national suppliers. Because service providers and markets are more distributed, spend management in this area is necessarily dependent on localized benchmarks and more sophisticated data sets.
But below the apparent complexity involved in managing outsourced services is real opportunity. Purchased services account for approximately 50% of non-labor spending (or approximately 25% of an average operating budget). And healthcare organizations with a documented approach to managing them can cut spending by up to 15%.
TractManager solutions empower your team with smart insights and modern tools, so you can better understand all the levers at your fingertips for managing spend and improving care.
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