Home Curiosity How Can You Optimize the Costs of Your Purchased Services?

How Can You Optimize the Costs of Your Purchased Services?


Hospitals and healthcare facilities are looking to cut costs in every way possible. And the COVID-19 pandemic has intensified it. The pandemic constrained the healthcare sector’s cash flow as Moody’s revised outlook for the sector went from stable to negative. But the financial health of the healthcare sector wasn’t pretty before the pandemic either.

Hospitals across the United States saw a 21.3% decline in margins from 2018 and 2019. One of the best ways for healthcare facilities to cut costs is to optimize their purchased services. The article shares tips on how hospitals can optimize such costs.

Why Are Purchase Services Difficult To Optimize?

Purchased service is a broad term applied to any spending that’s outsourced and contracted but not performed by in-house staff members. The main motive behind this is to reduce overall expenses. But at times, hospitals end up overspending tens of thousands of dollars. And the even bigger issue is these go unnoticed, under the hood.

This is because services are utilized, then invoiced. Since these are outsourced to a third-party provider, hospitals rely on them to provide the invoice with little to no control over it. This often creates a mismatch between what was required by the hospital and what services the third-party provider delivered.

 There are a couple of tried-and-tested ways.

Start With an Extensive Contract Review

If hospitals are employing a third-party contractor to provide a specific service; for example a managed services provider companythey must be locked by a contract or SLA. This details what the hospital expects from the service provider and what the provider is expected to do over the partnership. But more often than not, the contracts get static. It means the terms remain constant, and so does the pricing. On the other hand, the business requirement is dynamic, which keeps changing now and then.

So if hospitals and healthcare providers are using outdated or out-of-sync contracts, chances are high they’re overpaying.

Therefore, the first step in optimizing the cost of purchased services is going over overall service providers’ contracts and reviewing them for accuracy. For this purpose, it’s best to get an outsider’s opinion, bringing in a different perspective. That will also bring in specialized knowledge that will help in the review process.

Review the Accounting Software

Most hospitals use some form of accounting software to keep track of all of their expenses. If not, then the hospital will never be able to optimize the expenses.

When reviewing the accounting software, is it centralized or distributed? Since each type has its pros and cons, centralized accounting software is better in optimizing purchase service. It allows for easier understanding and analysis of overall purchased service expenditure from a bird’s eye view.

As part of the analysis, auditors should also look at vendor agreements and line items within the software. If they’re not aligned properly, this can result in invoice error, leading to overspending. Billing errors are among the most serious problems faced by the healthcare sector on the revenue cycle side. So the billing errors on the purchased services side are often neglected.

Therefore, a complete accounting software review should follow a contract review.

Benchmark Key Metrics

A vital ingredient of getting the most value out of your contracts is benchmarking. It is not only specific to healthcare but across all industries.

And the reason for this importance is that benchmarking provides a way for organizations to easily measure performance and non-performance.

Benchmark is an approach that calls for all stakeholder’s support and inputs. It includes owners, vendors, and market research. The first goal is to understand how current contracts are driving performance and assign figures accordingly. This is irrespective of whether the performance is net positive or negative.

Accuracy is the key here. Market research brings in the data about how competitors are faring in the marketplace. By combining these two, hospitals arrive at the benchmark to measure the contract’s effectiveness in place.

The overarching aim of benchmarking is to enhance organization performance while reducing cost.

Analyze the Data and Optimize Key Metrics

The groundwork for optimizing the cost of purchased services is laid out. Now it’s time to sit back and analyze what is happening in real-time. Customized database and management software often make this task easier. If certain key metrics underperform, the hospital can take quick action and review and adjust contracts accordingly.

Optimizing cost takes time, but hiring specialists can potentially optimize it faster. Hospitals will save a significant amount of their expenses.