In Premier’s 2023 Resiliency survey, U.S. healthcare supply chain, operations and clinical leaders noted their most significant overall challenges for the next year – with increased labor costs (46 percent) and ongoing inflation (45 percent) emerging as top concerns.
Against this backdrop, purchased services – a vital part of the healthcare ecosystem and delivery of patient care continuity – can account for up to 36 percent of hospitals’ annual indirect operating expenses.
Whether an organization is beginning its purchased services journey or has built a more robust and tenured program, purchased services optimization can be a huge opportunity for both an individual healthcare provider and the nation’s healthcare industry overall. Optimizing these supplier relationships, performance and spend can safeguard an organization’s operations and financials, enabling providers to streamline operations, gain efficiencies and pinpoint cost savings opportunities.
Premier analyzed robust purchasing data from Conductiv®, building on the 2021 report, to identify trending purchased services categories for high-impact savings opportunities.
What follows is an overview of this analysis, which looks at more than $56 billion in purchased services across 85 healthcare organizations from January 1 through December 31, 2022.
The Top Five Categories
The top five purchased services categories below represent Conductiv’s most active and requested categories for sourcing over the last 12 months, ranked by total spend. Also included is an overall weighted average savings estimate per category, based on both historical bid and negotiated savings data that Conductiv members achieved through a combination of both group purchasing organization (GPO) and local contracts.
1. Staffing - Clinical (Nursing, Respiratory Therapy, Radiology, etc.)
In every industry, the pandemic has drastically impacted the workforce – especially healthcare.
High-demand workers across healthcare have been in short supply due to burnout, employee retirements and a more competitive recruiting landscape. In January, the staff shortage peaked at around 34 percent according to a KFF article. Hospitals and health systems strive to maintain adequate staffing levels to meet patient needs while also considering budget constraints and workforce availability.
COVID-19 has hospital and health system leaders rethinking clinician staffing in both the short- and long-term. Through industry-leading services contracts, work redesign initiatives, technology to optimize labor and workforce enhancement resources, Premier is committed to helping hospitals get ahead of the workforce strain curve.
Potential category savings are estimated to exceed $360 million across the representative membership sample.
2. Revenue Cycle Management
U.S. hospitals continue to face financial losses, with an increase of 25 percent in losses since COVID-19's emergence. An American Hospital Association (AHA) analysis estimates that financial challenges are expected to continue in 2023. With drug prices increasing at an average rate of 31.6 percent, there is anticipated to be a strain on the revenue cycle for healthcare organizations, as they may face challenges in managing higher medication costs and billing complexities.
To optimize revenue and improve margin over the long term, many providers are investing in Revenue Cycle Management (RCM) capabilities. A successful RCM strategy and process can enable providers to maintain financial viability, build financial resilience and continue to provide quality care for patients. Premier’s PINC AI™ collaboration with R1 RCM Inc. brings R1 revenue cycle solutions to healthcare organizations. The solutions, which include analytics tools, rapidly assess the full spectrum of revenue cycle opportunities either as part of a broader margin improvement or stand-alone revenue cycle engagement for a health system. Early adopters include Ascension, Intermountain Healthcare and LifePoint Health.
Potential category savings are estimated to exceed $135 million across the representative membership sample.
3. Laboratory/Reference Lab Testing Services
Reference laboratories provide a varied menu of laboratory procedures including everything from routine tests with minimal complexity to esoteric tests with high complexity. Clinical laboratories were quickly overwhelmed by case surge and increased demand for testing as COVID-19 swept across the country in early 2020. In response, by November 2020 labs had built the capacity to process 20,000 COVID-19 test samples in a single day – up from about 2,500 in the spring of that year.
For many providers, however, scaling in-house capacity has proved an insurmountable challenge alongside workforce stability concerns as well as lab and diagnostic supply shortages. Many hospitals engage with third-party lab service providers to support successful operations and maintain adequate testing data.
Potential category savings are estimated to exceed $89 million across the representative membership sample.
4. FNS - Food and Nutrition Services
Food and nutrition services encompass a wide range of activities related to food, nutrition education and support to a variety of individuals as well as different communities. Food and Nutrition services promote good health while ensuring access to nutritious foods for all.
The key to any successful food service operation is to ensure that you have great leaders - and take advantage of the support from Premier. Self-op managed facilities are typically less costly when good foodservice leaders are in place to manage the operations within Food and Nutrition Services. In fact, approximately 75 percent of Premier member acute care hospitals are self-op, according to Premier data. Food and nutrition services play a critical role with improving public health outcomes, food insecurities and promoting optimal nutrition for communities and individuals.
Potential category savings are estimated to exceed $34 million across the representative membership sample.
5. Environmental Services (Cleaning/Janitorial)
Fundamental to patient safety, environmental services (EVS), including cleaning and janitorial services, are a key component of infection prevention and control in healthcare – even more so in the post-COVID-19 era.
Individuals in these roles are many of the unsung heroes of the pandemic, serving on the front lines of care. Today’s high-performing provider teams are supporting outsourced EVS staff with strong training and assistance as well as engagement as part of the core hospital team.
Potential category savings are estimated to exceed $34 million across the representative membership sample.
Other trending Purchased Services categories from 2022 (ranked by total spend) include:
- Staffing - Full Services (Clinical and Non-Clinical)
- Clinical Equipment Repair and Maintenance Services
- Building & Maintenance Services (HVAC, Boilers, Chillers, Other)
- Third-Party Freight Management
- Roofing Services
Another trending topic is Staffing (both clinical and non-clinical), where temporary staffing rates are gradually normalizing after the COVID-19 pandemic, leading to potential cost reductions. Health systems are exploring long-term strategies such as international recruitment and direct hire services to further cut expenses in this area.
Additionally, the category of Clinical Equipment Repair and Maintenance Services is witnessing increased attention due to the advantages outsourced companies offer in onboarding new employees more easily into the workforce by having the margins to pay more than an in-house team. As a result, this category is currently heavily sought after for both cost-saving opportunities and service improvement prospects.
Building and Maintenance Services, especially in areas like HVAC, Boilers, Chillers and others, are witnessing consolidation efforts to drive savings, as suppliers seek to expand their business in a fragmented market.
Third-Party Freight Management Services are gaining traction as they provide opportunities for improved performance and substantial savings through negotiated rates, which can significantly impact the bottom line.
Lastly, health systems are adopting a proactive approach in Roofing Services by leveraging suppliers for preventative maintenance to avoid costly repairs and replacements, while the growing trend of solar panels and "green" roofs aligns with organizations' Environmental, Social, and Governance (ESG) goals.
Purchased Services = An Untapped Savings Opportunity
Optimizing purchased services represents a significant, and often untapped, opportunity for healthcare organizations to realize savings and support a positive impact on the balance sheet and bottom line.
Based on Conductiv’s proprietary data on historic cost reduction percentages, the potential savings for hospitals are enormous – $43 billion (annually) for third-party services spending. This spend and savings area represents what can act as a tipping point for hospitals to increase savings and achieve positive operating margins – while maintaining and optimizing the quality of patient care.
Hospitals and health systems partnering with Conductiv have saved 11 percent (weighted average) across categories through a combination of GPO/local contracts in 2022.
Three Key Strategies for Providers to Tap into Purchased Service Savings:
- Key Performance Indicators (KPIs)
To enhance the performance of your suppliers, it is crucial to gain a clear understanding of their status. A practical approach to achieve this is by implementing Key Performance Indicators (KPIs) tailored to each supplier. These KPIs should align with the specific terms outlined in your contracts. By doing so, your organization can effectively assess the value derived from these suppliers, identify areas for potential improvement and consider alternative options if necessary.
Furthermore, establishing these measurable expectations in writing solidifies your supplier relationships. With defined KPIs and contractual obligations, both parties have a shared understanding of the standards to be met. This, in turn, fosters transparency and accountability, leading to a higher level of trust and collaboration between your organization and its suppliers.
A significant benefit of closely monitoring supplier performance through KPIs and contract compliance is the ability to identify any shortcomings promptly. Should any supplier fail to meet their agreed-upon obligations, you can take appropriate actions, including enforcing penalties, to ensure accountability and maintain the agreed-upon service levels. This not only protects your organization's interests but also helps in safeguarding the quality of care provided to your patients.
Ultimately, by consistently evaluating and optimizing supplier relationships, your organization can drive improvements in the overall efficiency, reliability and safety of the services received. This commitment to fostering strong supplier partnerships not only strengthens your position in the market but also helps in providing your patients with safe, high-quality care, underscoring your dedication to their well-being and satisfaction.
- Establish a Purchased Services Roadmap
Implementing a purchased services roadmap with clear, long-term goals and effective methodologies can significantly contribute to achieving purchased services savings for organizations. By thoroughly assessing the current purchased services landscape, organizations can identify areas of inefficiency, duplication and unnecessary expenses. With this insight, they can strategically negotiate contracts, consolidate services and standardize processes to secure better pricing and discounts.
Additionally, having well-defined goals allows organizations to prioritize their efforts and focus on high-impact areas that offer the most significant cost-saving potential. As the roadmap progresses, regular monitoring of KPIs and progress towards goals ensures that deviations or bottlenecks are promptly addressed, avoiding wasteful expenditures.
The existence of a roadmap fosters better collaboration and communication among departments involved in the purchasing process, enabling a coordinated approach that leverages the organization's collective purchasing power to negotiate better terms with suppliers. Standardizing procurement practices also streamline the purchasing process, reducing administrative overhead and the risk of maverick spending.
By actively managing and optimizing purchased services through a well-structured roadmap, organizations can unlock substantial savings, freeing up resources to invest in critical areas that directly contribute to their mission and growth.
- Leverage the Power of GPO Contracts
With hospitals and supply chain teams asked to do more with less, leveraging aggregate purchasing power can lead to significant cost savings and contract risk reduction. Ordering on contract yields the greatest savings and the fewest discrepancies – and saves time for both buyers and sellers.
For example, one Children’s health system leveraged Conductiv to find $322,000 savings in a single category, with savings across all categories totaling to $1.2 million. Another health system found 61 percent savings in just 90 days. Industry-leading purchased services contracts, technology and partners can help hospitals and health systems reduce costs, increase revenue, improve workflow and efficiencies, and enhance quality.
By integrating data sources, developing spend analytics and analyzing contract performance, hospitals and health systems are well positioned to uncover significant savings opportunities during a pandemic – and beyond.
Ready to transform your hospital’s purchased services program? Learn more.
