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Defining Purchased Services

Posted by Chris Heckler on Jan 9, 2015 9:31:00 AM
Chris Heckler

Everyone has a different definition of what falls under the broad description of purchased services. This is actually a big issue within the healthcare industry because this inconsistency makes it very difficult to measure the exact size of the market. If the entire industry truly understood that purchased services accounts for more spend within a hospital than medical/surgical and physician preference items, then they would be putting the same (or more) effort behind market intelligence to help drastically lower their costs in this space.

Defining Purchased Services Control, Define, Measure, Analyze, Improve

It’s not just a hospital issue either. Since the GPOs all have different definitions of purchased services, it makes it extremely difficult for the hospitals to find the right service contract (i.e. “Should I look under their purchased services catalog or IT?”) and for the vendors to know who they should be contacting at a GPO about completing a contract. All of these inconsistencies compound the problem.

Valify’s Definition of Purchased Services

Since Valify is 100% focused on the purchased services industry, we had to sit down and go over every department and category within a hospital and decide which ones will be lucky enough to fall under purchased services. This was a formidable task because after we were finished identifying all of the categories, we defined well over 1,000 individual subcategories just in purchased services! 

We then took all of those categories and aligned them under their natural parent categories and ultimately under the typical decision makers within a hospital.

Here are our 7 Primary Purchased Services Categories:

  1. Financial and Administration Services - (Banking/Financing, Collections, etc)

  2. Facility Support Services – (Food Services, EVS, etc.)

  3. HR Services – (Temporary Staffing, Advertising,etc.)

  4. Insurance Services – (Life, Disability, Malpractice, etc.)

  5. Clinical Services – (Reference Lab, Dialysis, etc.)

  6. Ancillary Services – (Courier, Parking, etc.)

  7. IT & Telecom Services – (Hardware, Software, Wireless, etc.)

All of the 1,000+ subcategories fall under these 7 Primary Purchased Services Categories in the Valify tool.

So how do we define purchased services? We actually had to come up with a guideline instead of a concrete definition because there were so many variables. Our definition of purchased services is:

Any outside service being performed for the hospital that does not involve delivering medical products to the facility but does include all products related to IT, Telecom, Printing, Mailing, Cleaning and Food.

Areas We Do Not Consider Purchased Services

Over the past year, I have had the honor of presenting at several industry conferences. During those presentations, I have seen many categories listed by hospital executives as being part of their purchased services program. Here are a few of the major categories that I recall seeing that we do not consider part of our definition of purchased services:

  • Construction

  • Pharmaceuticals

  • Medical/Surgical Distribution

  • Pharmacy Distribution

  • Lab Distribution

Besides construction, the primary reason for not including the other categories is due to the fact that these distributors are primarily delivering a clinical or patient facing product. We do consider Food and EVS Distribution as part of purchased services. However, we do not consider construction as part of purchased services because it is a temporary project (hopefully) and is budgeted outside of the typical services within the organization.

Since we collect all of the hospital's spend that is on their accounts payable report and not just purchased services spend, we actually categorize at least 95% of the total spend to make sure we are finding all of the hidden service and software maintenance contracts. Here are the major categories that we put all of a hospital’s spend into before diving deep into their purchased services spend:

  • Purchased Services

  • Medical/Surgical Products

  • Physician Preference Products

  • Ancillary Products

  • Pharmaceuticals

  • Laboratory Products

Hopefully this information is helpful to you. We thought it was important to layout our definition of purchased services so you can better understand how we think and compare it to your organization’s definition. Our goal is for all of us in the purchased services industry to finally agree on what really is and is not included in the definition. This will take all of the GPOs (national and regional) and consultants to start aligning their contract portfolios in a similar manner. Once this happens, the hospitals that are purchasing off of these agreements will naturally start to align themselves in the same way.

Please leave comments or message me directly with your thoughts or questions about where a category might fall under our category schema.

Healthcare Purchased Services Contracting Tip Sheet - Free Download

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Topics: Purchased Services

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