Overview

Facing purchased services head on, backed by actionable data and advice, uncovers several million dollars in opportunities

Member Profile

UW Health is an integrated health system serving more than 600,000 patients annually, with 1,400 physicians, six hospitals and 80 outpatient sites. Flagship hospital UW Hospitals and Clinics is a 648-bed regional referral center that includes a Level One adult and pediatric trauma center, American College of Surgeonsverified burn center, one of the nation’s largest organ transplant programs, an innovative Telestroke Program and the UW Carbone Cancer Center. In 2014,Vizient honored UW Hospitals and Clinics as the top performer in supply chain management, for the third time in four years.

Challenge

Health care organizations have long focused on supplies as their primary method of reducing supply chain costs — a methodology that UW Hospitals and Clinics successfully followed for years. But the organization needed to dig deeper — and purchased services seemed ripe with opportunity.

Health care purchased services include any clinical or operational service that is outsourced, in whole or in part, to an external organization. In recent years, it’s become clear that a wealth of purchased services savings opportunities exist within many health care organizations. But uncovering them is far from simple. Purchased services are often decentralized, with supplier contracts managed by individual departments. This makes it extremely difficult for supply chain to identify and pursue savings opportunities, particularly given the historic lack of purchased services benchmarking data available.

Despite these challenges, UW Hospitals and Clinics administrators felt strongly that pursuing purchased services savings was the right move and could put the organization on more solid financial footing. They felt just as strongly that Vizient’s expertise was necessary to identify areas that would bring the most value.

Solution

"Fellow members had provided us with positive feedback on the Vizient assessment process," said Nathan Wilke, program director, value analysis. "As a result, we decided that enlisting their support was the best thing for our organization moving forward."

First, Vizient performed an on-site purchased services assessment to identify actionable savings opportunities. Subject matter experts (SMEs) worked with the value analysis leadership team to establish the scope of markets for evaluation. They interviewed key business unit stakeholders about current service operations, contract terms, openness to change, timing and considerations.

"Six weeks before the assessment, Vizient provided me with a list of the departments they wanted to interview, and I got all of the key stakeholders scheduled," said Wilke. He added that although it involved numerous meetings, the interview process went incredibly smoothly.

To ensure success, the Vizient team also:

  • Categorized supplier spend from accounts payable files into specific service categories
  • Reviewed contracts to determine termination dates, exit clauses, service level commitments, and pricing terms
  • Evaluated opportunities and estimated the savings

"The process went well in terms of interpersonal skills and Vizient’s ability to make connections with our teams," said Wilke. "The SMEs excelled at understanding how much we were willing to change in certain categories, and that’s very important in this type of process. And they approached our staff in a very helpful and nonthreatening manner."

Results

Vizient identified several million dollars in potential savings opportunities in 15 primary areas, ranging from food distribution and medical device reprocessing to clinical equipment maintenance and aged claims recovery. The organization is pursuing the eight opportunities administrators viewed as the best fit for its culture and circumstances.

Vizient’s results in the aged claims recovery category proved particularly enlightening for the health system. "We hadn’t previously investigated aged claims recovery, and this category holds a lot of promise for us," said Wilke. "We’re continuing work on this because I don’t believe we have adequate internal resources to do this type of work and achieve results."

Vizient presented its final report to UW Hospitals and Clinics’ chief operating officer and chief financial officer. "Efforts like this don’t succeed without leadership support like theirs, and they were both very pleased with the Purchased Services Assessment report," said Wilke.

The Vizient results continue to generate valuable discussions throughout the health care organization and specifically among its purchased services departments. "Just gaining and keeping the organization’s focus on purchased services is helpful, because many times there is solid savings that would go overlooked unless you’re forced to have the conversation," said Wilke.

For example, after Vizient identified clinical equipment maintenance as a potential savings opportunity, it prompted a conversation about how much risk the enterprise is willing to take on as a whole compared to each individual clinical manager.

"One manager who’s unwilling to accept a certain level of risk may choose the platinum service contract, while his or her peers may feel like, ‘I can go with a less expensive tier knowing that if something does go wrong, the hospital has my back because this was agreed upon by the organization,’" said Wilke. "That was a conversation we needed to have."

The team also has a greater scope of data to use when determining current market rates and what the market will bear for various purchased services.

"Often times in purchased services categories we don’t have national benchmarks to incorporate into our contracts, whereas with Vizient SpendLINK®, for example, we’re just clicks away from having a wealth of knowledge on what other member organizations are paying," said Wilke. "The assessment took us from not having much competitive data on those purchased services categories and just having to do our best, to having a much better understanding of what others are paying nationally — and that continues to be helpful long after the engagement ended."