The healthcare industry accounts for 17.5% of the country’s gross domestic product, the highest among the world’s industrialized nations. Health expenditures in the United States were in excess of $3 trillion in 2014, of which, hospital care and physician/clinical services combined accounted for 52.5% of these expenditures. This industry is seeing unprecedented changes. With these changes comes extraordinary pressure on cost containment throughout the entire system. Typically the focal point for cost reductions is the supply lines of business. Familiar items like gauze, gloves, bandages, surgical instruments, beds and the like have been reviewed, reduced, and squeezed for cost savings year after year. These items account for 15-18% of a hospital system’s overall costs.
Accounting for 35% of a hospital system’s non-labor spend is an often-overlooked category called Purchased Services and technology. Many times hospitals don’t truly understand this cost category and underestimate its impact on the bottom line. Sometimes the technology spend is only partially accounted for in this category and sometimes it is entirely absent. This leaves a very large savings opportunity untapped as well. Additionally, Purchased Services spend is expected grow more than 15% annually for the next 5 years.
Typical Hospital System Cost Structure
Seprio's Data Shows:
Purchased Services ACTUALLY represents up to 35% of a hospital’s operating expenses. This is based on data gathered from industry institutions across diverse geographic locations and size.
With supply chains under intense pressure to identify key areas for cost reduction, systems have found it increasingly necessary to move beyond traditional areas of savings. Service contracts represent the third-largest cost area (behind labor and supplies) in a health system and it has evolved into an environment of increasingly complicated contracts and negotiations that often involve several departments and areas of responsibility. This makes it difficult to identify opportunities for cost reduction and attain savings goals. By analyzing client data and utilizing actual market intelligence to obtain the “best in class” pricing, Seprio maps a savings plan for your purchased services contracts. We’ll assist in identifying the key engagement areas for service contracts.
Typical target areas for service contracts include:
- Print Services / MFD
- Any contractually outsourced services (non-clinical and clinical)
We will perform an opportunity assessment of your service contracts utilizing information from the following categories:
- Total Purchased Services Spend – by vendor by category
- Budgeted Capital Spend – By category / by vendor / by project
- Any projects/major spends that will be renewing / kicked off within 6 months that would apply to these categories.
- Utilizing our staff, our market intelligence, and experience will allow your organization to realize savings much more quickly and efficiently.
Maximize your leverage in all contracts and ultimately maximize your savings by taking a dual approach and simultaneously attack both operational and capital spends. Typical annual savings range between 10-25% for purchased services contracts with a combined operational and capital approach.