It’s a generally accepted fact that purchased services account for 20 to 30 percent of a hospital’s total expenses. It’s also generally accepted that with more than 300 categories, it’s a largely untapped source of savings across the health care supply chain. And, with contract ownership spread over a multitude of departments in a typical health system, gaining traction around negotiating new agreements is a lot like trying to eat Jell-O with chopsticks—it isn’t quick or easy but it can be done.
What I’ve seen over and over again with purchased services is people stuck in a bad contract or they have negotiated a small win and left money on the table. I say break the old habit and start managing these purchased services contracts how we negotiate and manage the rest of supplies used by the hospital.
Before digging in, understand that in purchased services, every contract and category is unique and every situation is different. It’s important to do your research and understand how that service is being used in your hospital, the history with the vendor and who should be part of decision-making. Taking a deep dive into the details will make any negotiation go a lot smoother and it will ensure you build supplier performance and accountability into your contracts.
Follow these steps to better prepare for purchased services negotiations:
- Get your purchased services contracts organized. Start by doing an inventory of all purchased services contracts across the organization. Organize the contracts in a system folder or Web-based software that will help you to review these contracts on an annual basis. Understand who is managing the supplier and your annual spend.
- Review current contracts for language or gaps that favor the supplier. Make sure each contract has a clear definition of the service, its terms and conditions and that the language details what is expected of the supplier. Contracts should not be more than three years in length. Prioritize contracts that are “evergreen” for review and renegotiation. Make sure to have language in the contract that stipulates quarterly or annual reviews. This will help to keep both sides accountable for service and competitive pricing.
- Talk with your department directors or managers about the incumbent supplier. Listen to what they like and don’t like about the supplier, other suppliers they considered and why they chose the current vendor.
- Invest the time to understand the suppliers in the space and the pricing points. This step is essential as you will want to invite the right people to the negotiating table. Also, take the time to understand what performance metrics are common for this category and which suppliers are able to talk about how they are performing for other customers.
Purchased services negotiations can be challenging, but they aren’t impossible. It takes time, research and good data to build a picture of how these services are managed and how you can optimize your current state and tap into untouched savings. Following the steps detailed above will help to prepare you to have the conversations with your teams and negotiate effectively with suppliers who want to partner with you to make your hospital better.
To learn more about negotiation strategies for purchased services and how outside resources can support these efforts, contact us at firstname.lastname@example.org.
About the author. Throughout her career, Serina Seward has routinely interfaced and collaborated with legal, senior leadership and key stakeholders in clinical and non-clinical settings, coordinating and facilitating purchased services contracts for multiple hospitals and clinics throughout the Southwest. She has also provided analytical support and guidance related to service contracts to establish business needs, financial and operational impact, and to ensure compliance with all regulatory agencies. In her position, she has renegotiated 50 different categories, achieving millions in savings.