Purchased Services Spending Data and Benchmarking

Health information professionals are bending over backwards trying to identify new cost savings opportunities at their organizations. While there are certainly efficiencies to be found in streamlining clinical workflows and lowering medical supply prices, one major cost savings opportunity has largely been unexplored: purchased services.

Numerous IT tools exist to monitor and analyze supply and labor costs, but purchased services, which comprise 35% of most organizations’ non-labor budget, presents potentially millions of dollars of untapped savings. Data and Benchmarking

Technology, however, is available that enables healthcare organizations to visualize at least 95% of their purchased services spending across more than 1,200 categories while comparing their performance against peer organizations nationwide. Benchmarking capabilities give healthcare information professionals granular insight into their spending compared to hundreds of other hospitals and health systems.

This new, but proven, technology can eliminate hours of manual data analysis or thousands of dollars spent on consultants, who typically deliver reports based on dated information and inadequate benchmarking insight. Instead, organizations can utilize in-house IT to identify cost-savings opportunities in seconds and use that analysis to develop and execute savings projects that deliver lasting results.

The Missing Purchased Services Link
One of the most significant challenges in managing purchased services is that it requires hundreds of separate vendor negotiations (and ultimately contracts), which are time-consuming, especially if actual spending and utilization data is not readily available. Many organizations simply allow their vendor agreement to renew automatically instead of securing the competitive terms they deserve — some of these contracts are so old they were typed with a typewriter.

SEE ALSO: Demonstrating ROI in Health IT

Now that technology is available to visualize spending across the enterprise, organizations can begin to understand where those dollars are going. The second step to achieving significant cost savings is to arrive at the negotiating table with better leverage than the vendor in the form of reliable benchmarking data. Using an advanced purchased services data analytics platform, organizations can have actionable benchmarking insight into the following five areas.

1. Price. Not just what the organization is being charged for laundry or linens, for example, but rather the key metric within that category, such as price per pound, and many others. This granular level analysis is a much more specific and relevant benchmark that organizations can present during vendor negotiations.

2. Total cost. This benchmark offers a view of how the total cost of laundry, including external and internal costs such as labor and supplies, compares to peers in the industry. Armed with this information, organizations will be able to demand more favorable pricing terms that result in true cost savings, not just an arbitrary vendor discount.

3. Service demographics. With laundry and linen services, the frequency with which soiled linens are collected can positively or negatively impact the quantity of laundry being processed. Hospitals can use this benchmarking feature to evaluate how these specific contract terms, and many others, could impact the cost and quality of the service and compare those against a nationwide database.

4. Price variance. These metrics show how the organization’s contracted rates compare to the actual charges received from the vendor. If the actual charges do not match, that can signal overcharging, but it may also indicate that departments or entire facilities are over-utilizing services, which is another benchmark that an advanced analytics platform can deliver.

5. Utilization trends. Organizations can view their total utilization, such as pounds per adjusted patient day for laundry, and how they vary month over month. How those volumes compare to peers in the industry, which can be filtered based on geographic regions, is also valuable information to have for vendor negotiations and to improve operational efficiency.

Some organizations may currently receive purchased services spending benchmark reports from consultants. Unless consultants are utilizing an advanced analytics platform, these benchmarking figures are likely based on only their client engagements, not a continuously updated data feed of hundreds of provider organizations. The dated, consultant-built reports may also take months to create, which cannot help organizations preparing for a contract negotiation that is happening next week. Conversely, an advanced purchased services data analytics platform can deliver all the actionable intelligence an organization needs for preparation in a few clicks.

Conduct Evidence-Based Negotiating
Evidence-based care, a method of basing patient treatment plans on the most reliable and proven medical research, is a well-established concept in healthcare. However, few healthcare information professionals are able to conduct such evidence-based research and negotiation for purchased services because — until now — the data was just not readily available. They simply had to accept the vendor’s word that their organization was receiving the “best deal.”

With advanced purchased services data analytics technology, hospitals and health systems have reliable, timely evidence to empower their negotiations. Armed with this insight, organizations can overcome contracting obstacles and achieve millions of dollars of savings.

Chris Heckler is president and CEO of Valify.

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