5 common misconceptions about hospital purchased services

Separating fact from fiction for the "next frontier" of healthcare cost reduction

As more healthcare organizations look for ways to reduce costs, purchased services have become a top priority for executives and the supply chain department. Even with increasing exposure, purchased services remain misunderstood. The vast nature, scale and newness beg for questions to be answered and fact to be separated from fiction.

Misconception #1: My hospital does not have purchased services.

The truth: If your hospital outsources a service, it's using purchased services.

What are purchased services? More importantly, how can purchased services impact a hospital?

A purchased service is any service contracted for and performed by a third party rather than a hospital's in-house staff. Purchased services span departments across the entire health system and can be collectively categorized by the following:

  • Clinical (e.g., blood services, dialysis and lithotripsy)
  • Financial (e.g., credit card processing, resource management/staffing and revenue cycle management)
  • Environmental (e.g., facility cleaning, waste management and linens/laundry)
  • Support services (e.g., ambulance, food services and transcription)

According to research, purchased services can account for up to 35 percent of a typical U.S. hospital's operating expenses. When a purchased service is correctly benchmarked, appropriately contracted and effectively managed, a hospital can realize meaningful savings that can be passed on and used to improve patient care. When purchased services are mismanaged or neglected, hospitals put themselves at risk to lose money or forfeit the opportunity to reduce procurement costs.

Misconception #2: My department heads are managing their purchased services, and this process seems to be working well.

The truth: Department heads and the supply chain department should work together to purchase the right service at the right price.

Department heads are subject-matter experts for their respective purchased services. Supply chain professionals are contracting experts. Bringing these skills sets together in a value analysis setting will create a collaborative environment and a centralized process for purchased services.

Challenges arise when a formal review process is not in place for purchased services. For example, a hospital may be contracted with several service providers for the same service without knowing. A department head may approve a contract without a formal review for fear of losing the service. Contracts may be renewing automatically with price increases, and hospitals are unaware.

Additionally, hospitals should consult with a third party for industry pricing benchmarks and best practices for contract considerations across all categories of purchased services.

Misconception #3: My GPO and long-standing service providers give me the best options, contracts and pricing.

The truth: Hospitals should consider all of the options available to them.

A service provider on contract with a group purchasing organization or a vendor with an existing relationship may not provide you with the right level of service or cover a purchased service category you need.

Your hospital should choose the best option for your situation.

A GPO or an existing service provider could be a starting place for your hospital. However, vet these options with alternatives as well as industry benchmarks from a third party.

Misconception #4: Bidding purchased services is too time-consuming and challenging.

The truth: Online resources can help alleviate resource constraints associated with the competitive bid process.

A request for proposal process can help your hospital drive down purchased services costs through competition and ensure the scope and volume of services you need. However, evaluating lengthy responses from several service providers can be a time-consuming process for a value analysis team. But that should not deter your hospital from going through a process that helps your hospital get the right service at the right price.

There are available resources in the market that have been specifically engineered for purchased services. With an online RFP system built for purchased services, your hospital can obtain category-specific best practices, benchmarks, key performance indicators and other valuable information to request from service providers.

Misconception #5: As a contracting expert, I know how to execute all purchased service contracts.

The truth: For each purchased service, hospitals should deploy a team of expert to address a needs assessment to contract execution and ongoing management. However, most hospitals do not have the personnel resources to provide expertise on all purchased services contract categories.

Negotiating skills and contracting expertise are important, foundational elements to contract each purchased service successfully. However, every service evaluation should include subject-matter experts who also understand:

  • The complexities of the purchased service
  • The hospital's needs for the service
  • The key benchmarks to include in the service-level agreement
  • The requirements for service delivery

Using a third party to gain this level of insight into every purchased service could be a cost-effective option for your hospital instead of staffing in-house experts.

Beverly Schierer joined MD Buyline in 1999 with over 30 years in the medical field specializing in imaging. Ms. Schierer was affiliated with Texas Health Presbyterian Hospital Dallas for 11 years and served as chief radiation therapist before becoming the director of technical support for HELP International, a medical equipment-consulting firm. At MD Buyline, Ms. Schierer directs clinical analysts in the areas of radiology, oncology, cardiology, surgery, laboratory, pulmonary, nursing, neurology and healthcare informatics.

For more insight into purchased services for your hospital, attend the complimentary webinar "The Guide to a Successful Purchased Services Initiative" hosted by MD Buyline on Sept. 10, 2014 starting at 2:00 p.m. CST.



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