4 Ways to Improve Spend Management Outside of GPOs
In the healthcare world, group purchasing organizations (GPOs) have established their place for streamlining vendor selection and cost savings on products. However, these organizations do have their limits and can’t be relied on for every single aspect of your hospital’s spend management and cost control.
Purchased services in particular may be handled better outside of your national GPO, as firsthand knowledge of your specific business needs isn’t necessarily the role of a national GPO. In fact, there are several areas you can focus on to improve your bottom line and find savings beyond what your national GPO can deliver to all of their members.
1. Customized Contracts
Although this post is about going outside of your GPO, one of the first steps is to use your GPO’s contracts as a starting point for terms and pricing if possible.
There are two ways to tackle this. The first is to work with the GPO contracted vendor and tell them that you deserve a better price than what’s on contract because you can guarantee commitment or some other value to them. Vendors will typically agree to this because the GPO does not guarantee any commitment or volume on their contracts.
The second method is if your GPO does not have the vendor that you want to use on contract. Let’s say that your GPO has a contract for pest elimination services with only national vendors, but you want to use a local vendor for this service. You can use the national contracted terms and pricing as a starting point when negotiating with your preferred vendor. The GPO will frown on this practice but until they start writing contracts with vendors their members are actually using, they don’t really have a leg to stand on.
2. Look at Local Vendors
Hospitals leveraging GPOs for their supply purchases have benefited greatly because those vendors typically offer their products to the entire nation. Conversely, the majority of services vendors are often limited to a geographic region, which typically rules out their ability of being signed by a national GPO in their standard bid process because they have an obligation to select vendors which can serve all of their members. This is a major limitation for purchased services categories until the national GPOs start getting better data from their members and realize the huge opportunities at the local and regional levels.
What do you do if your GPO does not have a category covered on contract? Where do you begin? Beyond googling on the specific service category to hopefully find a reputable vendor, you have been very limited in the resources that have been available to you. Luckily, more and more resources are popping up with market intelligence in purchased services categories. Companies like Valify provide price benchmarking at the category level and with lists of vendors that provide these services across the nation at the local and regional level. This gives hospitals the actionable information they need to conduct RFPs on their own and know that they are getting the most competitive price for a hospital of their size and within their region.
3. Classify & Analyze Spend Data
How can you manage what you can’t see? Your purchased services spend is not being captured accurately by your GPO (trust me, I’ve worked with or discussed this with all of them). All of your other categories are being monitored weekly or monthly by their spend analytics solutions, so why are you not doing the same thing for up to 40% of your non-labor spend?
Closely monitoring the status of your spend management can highlight the areas of your spending that should be improved. This can be done by consolidating multiple services to vendors to gain economies of scale, re-negotiating existing contracts by utilizing better pricing benchmark data, and standardizing on preferred vendor(s) in a single service category.
There’s no point in conducting an RFP if you don’t first collect 100% of your spend in a category from all of your locations. You can’t do this by just pulling a GL code from your AP system because your GL is wrong more times than not. You must start by cleaning all of your data and categorizing the spend. The most efficient way to do this is to use a company like Valify that focuses 100% of their time on purchased services data collection and analysis. With dedicated purchased service analytics, your spending can be evaluated and managed for greater savings in areas you may not have expected.
4. Shared Service Models
This is a more aggressive savings model, but I’m seeing it pick-up traction across the country at the more sophisticated health systems. A shared service model is when you share resources with other organizations in order to benefit from the economies of scale or the limited available resources in your area.
The most common area that I see this in is around clinical equipment management and repair. It is very expensive to keep your technicians certified to repair your new, high tech equipment. It’s also very expensive to stay on the OEM’s service contract with uptime guarantees, etc. This has led to a big increase in sharing technicians that specialize in maintaining certain types of equipment within a geographic area. This keeps your costs down while keeping your equipment up and running.
In fact, some health systems have actually started separate businesses focused just on this shared services model. The gold standard is Novant Health. As Tony Johnson, COO of Novant Health Shared Services presented at the Purchased Services Summit last October, they have over 100 employees maintaining over 74,000 devices with a guaranteed response time of less than two hours. Read more about their overall program here.
There are many areas in which you can successfully implement shared service models if you can find like-minded organizations to partner with. Some of these are laundry and linen services, centralized business office (CBO), blood bank services, courier services, disaster recovery services, etc.
Savings Beyond GPOs
While there are numerous benefits to joining a GPO, which I already covered in this post, they have their limitations. Better savings can sometimes be found from sources beyond what your GPO can provide. Spend management must be handled creatively to best utilize your resources, and businesses looking to save on their bottom line shouldn’t be afraid to branch out from their established networks.