In previous years, 40% to 45% of a hospital’s non-labor operating expense was estimated to be within the categories that encompass purchased services. That number is now as high as 50%, shares Andy Motz, AVP with Valify’s Custom Contracting and Advisory Services.
Factors contributing to the rise in the percentage include the inflationary market providers have dealt with over the last 12 to 18 months. During that time, inflation caused the price of core services to rise anywhere from 9% to 34%. Managing outsourced services has become increasingly costlier due to fuel surcharges, the rising cost of energy and shortages in the labor market.
However, there is some good news. “Within some categories, we are delivering savings to our members, in spite of inflation. These opportunities for nonsalary cost reductions have risen to strategic importance,” says Motz.
Sans the SKU
A purchased service is any service outsourced or contracted for and performed by a third party rather than a hospital’s in-house staff. “We define purchased services as anything that doesn’t have a SKU number,” says Motz. “It’s whatever you need to keep a hospital running—from blood products and reference lab services to elevator maintenance and pest control.”
Additional examples of purchased services include food services management, laundry and linen processing, security, medical and waste management, snow removal, vending services, reprocessing and medical cylinder gas, to name a few.
Why the complexity
Outsourced services are often difficult to manage because they span multiple departments across the entire health system. This means that the decision-making and ongoing management of the contracts is likely decentralized. Adding to that challenge is the complexity of the categories and a lack of consistent operational metrics.
For providers who manage multiple facilities of varying sizes in widespread locations, contracts with local suppliers for these services can hide a lot of wasted spend from potential redundancies and regional price variations.
A lifecycle approach
“Working with suppliers and setting expectations for services through contracted agreements helps to control costs. Supply chain leaders must collaborate with the C-suite and department leaders to initiate and then sustain an ongoing, lifecycle approach to purchased services,” suggests Motz. He offers these best practices:
- Develop and implement processes for understanding spend and contract visibility
- Enlist the support of a categorization tool such as Valify
- Ensure benchmarks are regularly reviewed for high spend categories
- Store all contracts in a centralized location for easy access and visibility
- Prioritize supplier engagement and conversion
- Measure your success by monitoring the correct metrics
Accelerating value
As members of HealthTrust, providers have access to a broad portfolio of existing purchased services contracts. HealthTrust can also provide custom sourcing by converting existing supplier relationships to HealthTrust contracts for additional savings and improved terms and conditions.
Valify Solutions Group (VSG), a division of HealthTrust and the first technology-driven group purchasing organization (GPO) dedicated to healthcare purchased services, helps members extract significant value when contracting with outside agencies. Valify’s Advisory Services ensures members get the best rates and realize optimal savings by utilizing two important tools—benchmarking technology and expert-level knowledge of national and regional markets.
“VSG offers members the ability to create a localized contract with a national GPO supplier. It supports members in identifying which supplier works best for them and then negotiates local pricing and individualized terms and service-level requirements,” Motz explains.
Valify’s Advisory Services assists members by:
- Customizing GPO agreements specific to a facility’s needs
- Enhancing the quality of services members receive from outsourced suppliers
- Sharing best practices to ensure members are utilizing services appropriately and in the most cost-effective manner.
Valify has several tools designed to help facilities streamline their purchased services. The spend analysis technology automates spend categorization visibility, while its purchased services assessment (PSA) tool helps facilities comb through their data to find ways to save. Valify receives data updates monthly, which offers facilities the ability to mine for opportunities instead of simply waiting for contracts to expire.
“The PSA enables members to take a proactive approach to managing these categories instead of just reacting to pain points,” says Motz. “There’s never been a better time to analyze your approach to purchased services. While it may have been an area overlooked in the past, the amount of facility spend is now undeniable. And, with significant spend comes the opportunity for savings,” he adds.
Valify: Technology, GPO Portfolio & Advisory Services
Valify offers the first end-to-end purchased services program comprising spend analytics, benchmarking, contract management and advisory services that support sourcing and contract negotiations. Valify helps health system operators realize significant savings on purchased services by leveraging the largest data-driven market intelligence platform of more than $460 billion in total spend, categorized through proprietary machine-learning algorithms to generate benchmarking insights for its members. HealthTrust has licensed Valify technology to support GPO operations to accelerate value to HealthTrust members.
- Subscribers realize an average of 10%–30% savings per category.
- The VSG portfolio consists of $9B in annual contracted spend.
- Five HealthTrust health systems subscribe to Valify to actively save through consolidation of suppliers.
- Facility Support Services
255 subcategories - IT & Telecom Services
505 subcategories - Clinical Services 400 unique categories across seven service lines:
232 subcategories - Financial Services
148 subcategories - HR Services
138 subcategories - Insurance
34 subcategories - Ancillary Services
155 subcategories
- Facility Support Services
Quantifiable Results
Interpretation Services | $507,000 in savings
- Issue: A health system with 4,000+ staffed beds had annual spend in Interpretation Services totaling more than $5.2 million. It was using eight unique suppliers and individuals, which put them in the 91st percentile for Spend per Adjusted Patient Day.
- Solution: Valify Advisory created and ran an RFP for Interpretation Services on behalf of the health system. Current utilization was collected by modality: over the phone, video and in person. Suppliers were asked to propose their unit cost for each modality at the current level of usage.
- Results: Valify Advisory negotiated new rates for each modality, and the health system was able to reduce the number of suppliers to three—resulting in $507,000 in annual savings.
Reference Lab | $500,000 in savings
- Issue: A health system spent more than $1.6 million among several reference lab testing services. When compared to other Valify subscribers, they were also in the 85th percentile for spend per staffed bed.
- Solution: Valify Advisory requested line-item details from each supplier and sent proposals to two HealthTrust contracted suppliers and another incumbent.
- Results: Ultimately, the hospital selected a HealthTrust supplier and implemented 35% savings, or just over $500,000.
Print Services | $13.9M in savings
- Issue: Establish a unified production print management approach, in tandem with support from the IDN’s Marketing and Creative Services department, focused on achieving sustainable financial value and consistent results.
- Solution: Replace all five production print shops and 140 suppliers with an enterprisewide, sole-source print supplier. Establish a multidisciplinary governance team to provide oversight for production print management, including initiating quality standards, contract expectations and spend management.
- Results: Align all production print with marketing initiatives to ensure brand consistency. Enhance print management through visibility to spend data. Manage supplier to create consistent quality, standards and results. Leveraged source supplier to drive 45% savings.
Enabling Supplier Diversity
With a number of health systems prioritizing their use of diverse suppliers, Valify has technology to support those initiatives. Subscribers can use the database to enhance decision-making around diverse suppliers and spend, including where there are opportunities to convert business to a diverse supplier.
Valify’s diversity reporting tool identifies suppliers with a diversity designation. Within the platform, a badge next to a diverse supplier appears along with the certification source and expiration date. The tool identifies supplier diversity according to 18 different classifications.
Drive value in purchased services for your organization by contacting the Valify team today at 972.963.5130 or info@getvalify.com, or by attending one of the two purchased services education sessions at our upcoming HealthTrust University Conference.
