In this blog series so far, I have shared that negotiating Purchased Services category is a heck of lot different than med/surg, physician preference items, capital and non-clinical commodities. Plus you can encounter lots of roadblocks along the way that can prevent you from realizing huge savings. My first two posts shared these common dilemmas and now I am going to share eight useful ways you can knock down these barriers, resolve these problems and uncover ways to reduce your costs.
1. Overcoming the Data Dilemma
Data relating to which vendors you are using, which facilities are using those vendors, and how much you are spending can be quite a task to uncover. One way to get at this information is to have a full time analyst on staff. I work with many hospitals that even if they do have someone who is dedicated to finding spend data, they still struggle to find this information efficiently and effectively. It is just too difficult with so many different vendors, locations, and no central place to find it all.
Ideally, the best answer is to use a cost management platform for Purchased Services to characterize your spend, provide you with market-share reports organized by vendor, facility, cost center and stakeholder groupings and share realistic cost savings benchmarks. Then you will have the ability to instantly view, sort, download, email, see potential savings and create custom reports for all of your Purchased Services spend right at your desk and save you considerable time.
2. Overcoming the Decentralization Dilemma
Trying to transition from a decentralized contracting environment, whereby each department manages their own contracts, to a centralized environment, aggregating all contracts across the entire system, creates hurdles. In most cases, the individuals who use these outsourced services, previously negotiated and awarded the contract and feel strongly about their chosen vendor. Who could blame them? The fact remains that decentralized contracting efforts are not nearly as effective as centralized ones.
There are many steps to ensure success. First you need to gain top down support from the C-Suite. Then I strongly recommend a communication from the CEO out to each of the department managers requesting their support and willingness to work with the contracting team.
If this seems overwhelming, you may look to work with an outside organization that has been down this road before and can help you navigate the process and avoid some of the roadblocks you could encounter.
3. Overcoming the Stakeholders and End Users Dilemma
The interactions with the stakeholders and end users will be critical to a successful transition. Start with going to each department and introducing yourself along with what your goals are and ensuring them that you are not there to take their vendor away but to simply make sure there is a competitive contract in place. Then lay out a plan to help you launch the program, define the key stakeholders for the specific initiative and create effective engagement rules. These rules can include things like waiving the stakeholder’s right to vote on an award based on their absence during the RFP process and instructions on incumbent vendor interactions during the RFP process.
4. Overcoming Supplier Dilemmas
As I mentioned in the previous post, the vendor pool in Purchased Services mostly consists of smaller, local organizations. This leaves you with the burden of negotiating these contracts yourself. Before you even get to the fun part of negotiating though, you need to identify vendors that can support your organization and that can be challenging if your system expands beyond a 30-mile radius. For example, if you are trying to leverage your window washing contract to be a sole source award, which vendors can cover your entire footprint?
Having access to a vendor database will help you uncover the competitive landscape of your area. Ideally this vendor database would have relevant information readily available such as vendor name, what service they provide, regional coverage info etc. In addition, the best practice would be to have a rating system that allows for commentary on how the vendor is performing at other facilities and visibility into what other facilities they services in your area. Coming this fall, we will be launching a powerful new software tool that will… oh wait, I can’t talk about that yet. Stay up to date on our blog posts and you will be one of the first to know how it can help and when it is available!
5. Overcoming the “How much should this service cost?” Dilemma
The absolute best way to be certain what you are paying is a competitive price, is to do an RFP with three or more competing service providers which can help you achieve savings in excess of 20% and sometimes as high as 40% or more. Unfortunately, the effort to run one of these events is very high and will likely take a several months of time but the return usually pays off in the end. To overcome this, you should look for a technology solution to help automate the sourcing process and condense the amount of time it takes to perform the negotiation process. As a point of reference, our solution can help you to do a negotiation in just hours not weeks.
Another way to determine how much a service should cost and if you have a fair market cost in place is through benchmarking. The costs for Purchased Services varies greatly based on geographic variations in labor costs, service volume and frequency requirements, prevailing marketing conditions and more. A good Purchased Services benchmark will take into account all of these unique conditions to provide you with the reliable information you need to negotiate the most competitive contracts.
6. Overcoming the RFP & Sole Sourcing Dilemma
A smaller, local vendor pool creates a contracting nightmare for the GPO community. Their portfolios that you rely so heavily on in other areas are void of these local and regional suppliers. This can create many issues in the community as well as some problems with your MBE/WBE programs. So now what? Do you have the staff to manage all of these contracts and potential RFP’s? You can certainly find options to augment your current staff using consultants and in many cases they will help tremendously. The costs are sometimes prohibitive so there have to be alternatives. One suggestion would be to build a relationship with a supply chain individual at a hospital or health system in your area. I realize that there may be a competitive situation to overcome, but it is time we all pull together and use the resources available to us.
7. Overcoming the New Supplier Implementation Dilemma
If you awarded your RFP to an incumbent vendor, implementation will be a step that likely won’t require much effort from the contracting team. However, if the decision is made to award to a new vendor, this can be quite painful and can actually take more time than any other step along the way.
To help ease the pain, you should require that your vendors share ways they can help manage the transition process to make it as minimally invasive to your organization as possible. Depending on the category, your vendors can suggest alternatives such as using a phased approach or transitioning after hours. In addition, requiring the Vendor to provide a PMP certified Project Manager to manage the entire transition process from start to finish and minimize disruption should be considered.
In addition, you can enlist the support of an external resource to offload some of the heavy lifting and administrative tasks so you can devote more time to implementation activities. This will also help accelerate the implementation process so you can start realizing cost savings more quickly
8. Overcoming the “Did we actually realize the savings?” Dilemma
You have completed your task and ran a successful sourcing event that yielded 20% savings for your health system. This took you months and months of work and now how do you know you are realizing the savings you were expecting? Are your end users using a different vendor than you awarded? Are your vendors charging the prices that were agreed during your negotiation? Has someone changed the service levels during implementation?
To find this information quickly and to see if you are on track you need to have access to real-time spend tracking by category, vendor and even down to the department level. Fortunately, there are analytics solutions available today that allow for this real-time visibility into your purchased services spend. I suggest finding one that is delivered in a web based format, with frequent data refreshes and proper, sourcing ready categorization.
And the Moral is:
The moral of this blog series is that Purchased Services is an excellent way to uncover savings and although there are roadblocks that will prevent your success, Medpricer can be your bulldozer. For more information about how we can knock down your roadblocks, feel free to contact me directly at ……