Healthcare’s Purchased Services Management Problems Expose Contract Management Deficits

contract

As a super-category of spend, purchased services continue to pose challenges that are felt across all industry. Although there’s a well-known playbook (i.e., get your data-act together; benchmark; rationalize suppliers and source better arrangements), what is it about purchased services that continues to confound our best efforts? Among healthcare providers — an industry that is just now learning to take control of its supply chains — it has been exposed as a huge problem.

As key performance indicators in product categories, on-time delivery and quality are relatively straightforward, especially in a pure inventory context. When we need something, it’s either there or it isn’t. Chances are, if the product didn’t check the right quality boxes, it won’t be. That kind of thinking rarely applies to purchased services, where performance metrics, while not necessarily less well-defined, tend to be more difficult to manage. Performance is often more expectation-based, and the determining processes are most always retrospective, interrupt-driven and reliant on supplier-reported data. One things for sure, they aren’t standardized.

Premier Inc., a healthcare-focused group purchasing organization (GPO), recently announced a new service targeting purchased services. As one of healthcare’s largest GPOs, Premier was positioned to organize billions of dollars in purchased services spend data ($125 billion) and has now created a benchmarking service, not unlike the benchmarking services it already provided across other categories of spend. While this is big news in healthcare, where purchased services are a growing area of expense and concern, it doesn’t begin to address the fact that average contract utilization for care providers is an anemic 57%.

Although internal compliance rates continue to improve, what we’re now learning is that care providers aren’t capable of driving external compliance — not much at all. In other words, while driving internal compliance to newly negotiated contracts is now recognized as foundational, deficits in contract governance are being painfully exposed.

Several recent reviews of current healthcare provider contract management systems revealed the following:

  • There are few integrated, enterprise-wide views of supplier engagements
  • Contract lifecycle management processes are not well coordinated
  • Supply-side contractual obligations are being tracked manually on spreadsheets
  • Suppliers are expected to self-report. As the primary source of their own performance data, healthcare providers have limited validation capability

With purchased services now representing up to one-third of a health system’s total expenditures, improving margins is going to require health systems go deep by conducting an inventory of their contract management capabilities. Especially in a purchased services realm, it cannot remain a function of supplier-reported performance metrics, or the benchmarks being aggregated by third parties will not only become increasingly meaningless but potentially misleading.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *