The Secrets To Gaining Insights Into Purchased Services Spend
By Chris Heckler, CEO, Valify
Hospital and health system purchased services professionals have hundreds of vendors to manage, a process accounting for up to 45 percent of their non-labor budget. Despite the financial magnitude, this staff has little time to analyze their financial data. Even fewer resources are available to research spending benchmarks or evaluate contract terms.
In the face of shrinking budgets, purchased services professionals need the ability to visualize spending across the enterprise in an instant and drill down into vendor categories to unearth actionable insights for realizing savings. Just as quickly, they require analytics and benchmarking tools to support the vendor negotiation process.
The final installment of this three-part series on purchased services explains the methods available to purchased services professionals to leverage spending data for identifying savings opportunities, benchmarking performance against peer organizations, uncovering hidden terms, and negotiating better contracts. Part one of this article series described purchased services and the importance of this major arena of healthcare spending. Part two explored the qualities to look for when choosing a purchased services technology partner.
Identifying Savings
In coming years, identifying savings opportunities across hundreds of purchased services vendors will become more challenging without a technology partner to quickly visualize and categorize spend data. Strong merger and acquisition activity among hospitals and health systems continued in 2016, spreading organizations out over wider geographic regions and increasing the number of vendors and risk for fragmented processes. Additionally, since most purchased services vendors only provide their services in a local or regional area, expansion increases complexity for purchased services spend management.
Post-merger, purchased services professionals will likely find redundant services, fragmented purchased services management processes needing alignment, rogue vendors being used outside of a preferred vendor, and the continued risk of vendors charging above the contracted rate or charging for additional fees not included in the contract. Some, or all, of these inefficient and costly oversights are often found in hospitals not going through a merger.
To standardize processes and install better governance, purchased services professionals require data analytics technology. A cloud-based, enterprise-wide data analytics system allows them to easily visualize spending across more than 1,200 categories, identifying spending trends in seconds.
Benchmark Spending And Performance
Visualization is crucial, but eliminating overspending also requires benchmarking. There are two types of benchmarking leveraged to identify savings and negotiate more favorable contracts, each with their own benefits. Most GPOs, consultants, and other solutions can deliver key performance indicator (KPI) benchmarking which provides a standardized comparison, although not necessarily timely, of how spending stacks up in the industry. Category benchmarking, which is available through an advanced data analytics platform, pinpoints how much organizations should be spending and backs it up with data to improve performance. For a category such as laundry, the benchmarking analytics platform should be able to detail how much the organization is spending per pound tracked monthly across all facilities and compare it to a real-time database of hundreds of peer organizations. Leading benchmarking technology can also offer insight into how specific service implementation decisions or contract terms such as the contract length can affect the overall cost of the service. Quality benchmarking technology can provide the actionable insights necessary to transition from simply recognizing there is a problem to understanding how to solve it.
Unearth Hidden Contract Terms
While studying benchmarks, in-house purchased services professionals need to identify hidden terms in contracts such as auto-renewals, evergreen terms, and hidden fees and charges. New analytics technology can compare categorized purchased services spend against contracted rates to pinpoint hidden fees or other charges staff should explore. Irregular spending, however, may be a sign of overutilization by a particular facility or department. These internal workflow or procurement policy issues are often more quickly remedied than a contract negotiation because, in many cases, the parties are not aware of the overutilization error.
Tracking savings projects across hundreds of vendors is simple, too. Once the new contract is negotiated or vendor consolidation project is complete, advanced data analytics technology will continually monitor volume and cost metrics to ensure financial and operational results are consistent with the negotiated terms. Staff can then be alerted when trends are skewing out of expected ranges, address the issue, and even recoup money paid to the vendor if the contract wasn’t honored.
Evidence-Based Negotiating
The most persuasive negotiation tactic is to present verifiable evidence — facts the other side of the bargaining table cannot dispute. Historically, hospitals were at a disadvantage demonstrating their actual spending compared to the contracts as well as how competitive their rates were against industry benchmarks.
Advanced purchased services data analytics technology changes all that. Choosing a solution designed exclusively for the healthcare purchased services industry ensures reliable, timely data to empower in-house purchased services professionals to streamline internal processes, overcome negotiation obstacles, and achieve potentially millions of dollars of savings.
About The Author
Chris Heckler is the CEO of Valify, a web-based analytics and benchmarking solution that delivers timely data-driven insight into purchased services spending across the enterprise.