Monitoring Purchased Services Expenses - Part 2: Best Practices and How to Get Started
In part one of this two-part series, we stated that continual monitoring is the only way to ensure actual spend aligns with budgeting expectations. We discussed at length the many red flags, pitfalls, and common missteps on the path to successful and regular monitoring.
Though the process of tracking and monitoring expenses to find realized savings is difficult – perhaps more difficult for purchased services than for any other area within a hospital – below are best practices that have been proven effective.
In part two of this series, we discuss the top best practices and tips to make monitoring expenses easier, faster, and more successful.
Whether or not you use an automated monitoring tool (like Valify’s Savings Project Tracker), assigning an owner to a project is always the first step. This individual (or value analysis committee) should be responsible for monitoring the monthly expenses of a project and for tracking the spend trends.
Assigning a single point of contact will ensure unexpected spikes in spend trend are addressed immediately. If and when spikes happen, the project owner can begin investigating and work toward resolving the issue. Spikes in spend can occur for multiple reasons:
- Incorrect charges – including disregarding volume discounts or other discounts within the agreement and hidden fees potentially applied
- An unnecessary increase in utilization – even planned increases need to be evaluated
- Departmental rogue spending, or vendor non-compliance
Without a purchase order (monitoring pitfall #1), meticulous, hands-on monitoring is the only way to make sure your health organization is not overcharged. An individual or committee must take ownership of each project to apply this level of oversight and corrective measures.
Considering purchased services is often purchased off-PO and at the department level, owners of purchased services savings projects should be prepared to have to do some digging and contact multiple data sources for accurate visibility into spend.
For example, your contacted vendor for landscaping is NORTHWEST GREEN TEAM. When pulling spend for monitoring and tracking purposes, make the request for NORTHWEST GREEN TEAM and for all landscaping related spending. Using this method, it’s not uncommon to find multiple (non-contracted) vendors for the category.
Full visibility is a necessity to pinpoint if and where people are purchasing from non-contracted vendors or incurring more utilization than what was outlined in the agreement.
As important as monitoring a savings project is, the frequency at which monitoring occurs is equally important. For the most accurate visibility, the best practice for monitoring purchased services savings projects is at a monthly frequency. Anything longer (yearly, even quarterly) risks finding increases in expenses for the project too late to take corrective measures. Monitoring the spend every month ensures there is no price creep.
Require monthly utilization reports from all of your top vendors, and carefully audit these reports to ensure you are receiving the services and pricing as outlined in the signed agreement. If left unmonitored, services will often times fluctuate from the agreed upon terms.
Considering that health systems utilize an average of 1,505 vendors for purchased services, it will be a processing nightmare to receive and evaluate utilization reports from all 1,505. We recommend focusing on those with which you have savings projects and a handful of other top categories for savings: valet services, vehicle repairs, desktops/laptops, staffing, legal services, patient transport (see details on common savings categories in 2017). Monthly reports from purchased services vendors should be similar to the distribution usage reports hospitals get within med/surg and from specialty distributors in pharmacy. Transparency with vendors will ensure you’re getting the levels of service that coincide with the contracted terms.
Communication throughout the organization is important for a purchased services contract to be successful. Once the difficult task of negotiation is complete, implementation and compliance should be a top priority. Establish a clear line of communication through all departments on expected use of service and vendor of choice.
In each department that will come in contact with each particular service, identify individuals who will champion compliance efforts. Have a process in place for how to handle instances of purchasing off contract. According to Aberdeen Research, best-in-class organizations achieve up to 80% more savings than others through a clearly defined contract compliance process.
Through regular monitoring, when a service is discovered to be purchased off contract, the project owner needs to communicate the contract compliance guidelines with the appropriate departmental contacts immediately (waiting until the next quarter is too late). However, as we discussed in part 1 of this blog series, communication challenges are inherent for purchased services.
A best practice for overcoming these communication challenges is to maintain a master log of the point of contact for each cost center. Start by making the request to your AP department for the list. If you choose to filter the list, filter out those that do not apply to the projects you are monitoring. Finally, audit the list on a semi-annual basis to capture any changes.
Involve upper management early and often. Include updates and rationales on savings trending, savings captures, and any spikes in expenses. Detailed updates to upper management will keep them engaged and will encourage quick action when executive direction is needed, particularly when there’s trouble crossing siloed departments.
Make connecting with executive sponsors part of your process. Executives will not only provide leadership and set the tone for making vendor compliance a priority, they can also help to remove roadblocks (e.g. CFOs can help to gain visibility into disparate spend data.)
A Continuous Process
Savings project tracking and monitoring must be a continuous process for purchased services in particular. Though there are many, awareness of the pitfalls and common missteps when monitoring purchased services savings projects is the first step to begin to successfully track expenses. Following gaining an awareness of pitfalls, implementing the proven best practices detailed above will drastically increase your savings tracking and vendor accountability success rates.
To amplify and simplify savings project monitoring, automate the process with Valify’s robust technology platform. Request a demo.