Pennies in the Couch: How Health Systems Can Maximize Savings through Standardizing Purchased Services

February 16, 2018 Tim Berkey

Have you ever experienced the joy when finding a lost dollar after doing a load of laundry, or spotting loose change within the couch cushions? While it may not be much to start, these buried treasures can add up. When looking at healthcare spend, purchased services can sometimes be compared to these unexpected finds. Often, when delving deeper, leaders can realize these savings are hidden in plain sight.

Purchased services are crucial to hospital operations, but they are not always top-of-mind when it comes to delivering care and managing costs. These services span the healthcare landscape and can include costs that are falsely assumed to be fixed (e.g., electricity and cable), other clinical services (e.g., lithotripsy and perfusion), and a variety of other operational and financial arrangements that can number into the hundreds.  Related, purchased services represents a relatively large chunk of hospital operating budgets, often accounting for 25-30 percent of overall spend.

When looking at this area of spend, it is crucial to examine it from a utilization standpoint, versus a traditional pricing opportunity only. To do this, it is important to understand key data, benchmarks and trends to create transparency around what is being spent internally on these services, as well as to access what comparable peers are spending nationally and regionally.

Most of us know how to negotiate a better pricing, including increasing rebates and driving conversions. However, tapping into the utilization of products and services in healthcare operations and narrowing those around a few preferred vendors can yield significant savings is a frequently overlooked strategy. While standardizing supplies and clinical practice has often been a focus on the clinical side, this practice is ripe and worth exploring within the realm of purchased services.

Ideally, procurement leaders should constantly question resources and products that go into keeping the lights and operations running within a health system.

Six often overlooked areas of purchased services include:

  • Travel: What expense management platform is in place to verify mileage reimbursement to employees via GPS route tracking? To what degree do employees use this platform versus direct purchase of air, hotel, and car?
  • Wound care: What is the hyperbaric oxygen therapy conversion factor and is the organization driving inpatients to its own outpatient wound center?
  • Freight: What is the mix of packages being shipped inbound on priority overnight versus ground?
  • Legal: What is the process for engaging external counsel compared to in-house counsel?
  • Marketing: When each hospital in a larger system does an orthopedic marketing campaign, is the branding identical and/or are multiple agencies engaged?
  • Furniture: Do departments across an IDN have the same furniture standards?

Whether it’s in the cushions of the couch or in the accounts payable and general ledger spend detail in the hospital, the savings is usually hiding in plain sight. Think of contracts that require leadership from multiple departments, look for utilization savings on the back end and you’ll help drive new value back to the organization.

As part of AHRMM’s cost and quality outcomes movement, join Premier on Feb. 20, 2018 at 1PM ET for a webinar on best practices for tackling purchased services spend. Premier’s team will review common pitfalls to understanding actionable data, identifying smaller spend categories for hospital staff, and understanding the pitfalls to avoid.  This webinar is free for AHRMM and Premier members. Sign up here today!


Author information

Tim Berkey

Tim Berkey

Vice President at Premier Inc.

I’m a Vice President in Premier, Inc. and based in Charlotte, NC when I’m not supporting our members in the field. I have executive oversight responsibility for large-scale expense reduction partnerships in Premier’s members. When I’m not working I enjoy spending time with my family, music, and cooking.


The post Pennies in the Couch: How Health Systems Can Maximize Savings through Standardizing Purchased Services appeared first on Action For Better Healthcare.

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