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How Much Are You Getting Out of Your Purchased Services Assessment?

Posted by Chris Heckler on Jan 27, 2015 8:00:00 AM
Chris Heckler

purchased services assessment

You paid somewhere between $50,000 and $150,000 for a consultant (or GPO) to complete a purchased services assessment for your health system. It most likely took them 6-12 weeks to complete, and they identified millions of dollars in savings opportunities. Congratulations! Now what?

The Process

To catch some people up, one of the fastest growing areas within healthcare consulting is completing purchased services assessments. A purchased services assessment is exactly what it sounds like. The consultant sends in a team of people to pull all of your purchased services contracts, download 12 months of accounts payable data, and most likely interviews several directors and VPs within the organization.

They then fly back to headquarters and start analyzing the data. They pull out key contract information like the name of the vendor, category name, length of the contract, total spend and any out clauses available...just to name a few.

The exported accounts payable data would be sent to their team of business analysts to start crunching through in Excel or Access. They would use vlookup and cross their fingers hoping that your vendor name is the exact spelling as the vendors they have in their database. The vendors that do not match would need to be manually categorized by Googling them and hoping their analysts (or interns) understand the nuances of the healthcare industry to accurately interpret what is on this vendor's’ website and how it was most likely used at the hospital.

After several weeks, the consultant can finally start looking for savings opportunities.  They will look at your total spend within a purchased services category and apply their average savings that they may or may not have realized at previous client engagements.

They will then present you with a large binder full of reports and graphs showing you where you are performing well and where there are a lot of savings opportunities. You might feel a little overwhelmed at this point because they will show a lot of inefficiencies or problems within your organization and you won’t know where to start. So you will ask them the obvious question: "How do I actually implement these recommendations and realize these identified savings?” They will smile and tell you that there is no need to worry; you can hire them to realize all of these identified savings and you can focus on your current work.

STOP! Before you hire them to implement this savings and most likely pay 25%-35% in contingency fees, you need to step back and review your options.

Your Options

Option 1: Retain the consultant to realize all of the savings.

  • Pros

    • They already know the details of your spend and contracts because they just completed your assessment.

    • They most likely have a proven track record with several other hospitals.

    • They have many subject matter experts that have done this before and have most likely worked with your vendors.

    • You can blame them if something goes wrong.

  • Cons

    • This is your most expensive option.

    • It puts all of your eggs in one basket.

    • Potential perception that you couldn’t handle this on your own.

    • Loss of direct contact with your vendors throughout the process.

    • Loss of contract knowledge because you didn’t negotiate it yourself.

Option 2: Thank the consultant and implement all of the savings yourself.

  • Pros

    • This is your cheapest option.

    • The assessment will help you allocate your team more effectively and therefore increase productivity/output.

    • You will know everything about the contracts you implement and the specific nuances about a vendor or service.

    • You look like a hero if you can pull it off.

  • Cons

    • Lack of subject matter experts within your team.

    • Lack of bandwidth within your team to take on more projects.

    • Puts all of your eggs in YOUR basket.

    • You will be blamed if the savings are not realized on time.

Option 3: Divide and conquer - give the consultant the categories that you do not have expertise in and you take the rest.

  • Pros

    • You will maximize your savings while minimizing your costs.

    • Your team will stay involved and get the satisfaction of saving money for the organization.

    • You and your team will grow by learning best practices from the consultant.

    • You will know more about the contracts and vendors the consultant is working on then you would if you completely outsourced to them.

    • You will realize the savings much quicker than doing it on your own.

    • You will still look like a hero when you pull it off.

  • Cons

    • It’s more expensive than doing it on your own.

    • You’re relying on a third-party that hopefully doesn’t get acquired and/or lose it’s focus during your engagement.

    • The consultant will most likely try to continuously extend/expand their engagement, which is annoying.

Next Steps

Once you have selected an option, you still need to maximize the identified savings within the purchased services assessment. The best way to do this is to input all of the identified savings percentages by vendor and/or category into a tool like Valify.  

Valify will then calculate and visually display if you are realizing the expected savings or not. You can set contract effective dates so the tool automatically starts calculating the difference from your previous 12 months spend to the new spend.

This is critical when you are paying contingency fees. Do not pay a consultant or GPO based on identified savings! That contract is worthless if no one is buying off of it. You should not pay a contingency fee until you start seeing actual savings hitting your bottom line.

You and your consultant (if you selected that option) can both login and see the real time results so there will be no questions about if you owe a contingency fee or not.

One More Thing

One more note about the purchased services assessment: If you gave your contracts to a consultant during this process, ask them to send you any electronic records they made during the evaluation. If they scanned them all into PDF files or typed in the important information into Excel, you should get a copy of this information for the fee you paid. If you do, it will greatly help you down the road.

 
Healthcare Purchased Services Contracting Tip Sheet - Free Download
 
Image Source: iStock
 

Topics: Purchased Services

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