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Can We Look to Purchased Services as a Recovery Focus? www.PurchasedServicesMagazine.com
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Contents 4 FROM THE PUBLISHER’S DESK Price is a Moving Target: How to Measure It
Healthcare Purchased Services Magazine Healthcare Purchased Services Magazine is published quarterly by The HCP Group, Ltd.
6 FROM THE MANAGING EDITOR’S DESK Important Lessons for Continued Results with Purchased Services Value Analysis Teams
P.O. Box 939, Skippack, Pa 19474 Phone: 800-220-4274 FAX: 610-487-2883 www.PurchasedServicesMagazine.com
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9 FEATURED ARTICLE
Editorial Staff
Purchased Services as a Recovery Focus in Healthcare
Publisher Robert T. Yokl
12 BEST PRACTICES
bobpres@svahsolutions.com
Starting Down the Path to Continually Finding Substantial Savings in Purchased Services
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Managing Editor Robert W. Yokl
15 CONTRACTS 101 Fundamentals of a Contract: What You Don’t Know Could Hurt You
ryokl@svahsolutions.com
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Senior Editor
18 SERVICE QUALITY
Patricia A. Yokl
Pre-Contract Renewal/Bid Customer Survey Can Be A Real Eye Opener
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Editor and Graphic Design Danielle K. Miller
21 COST MANAGEMENT 3 Major Cost Savings Beyond Price Elements for Your Purchased Services Program
25 NEGOTIATIONS 101 What’s the Right Temperament for Successful Negotiations?
29 THE LAST WORD Are You in Control of Your Purchased Services?
Volume 1/Issue 1
Copyright © The HCP Group, Ltd. All rights reserved. Reproduction, translation or usage of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without permission of the copyright owner is unlawful. For permission call, fax, or e-mail Robert W. Yokl, Managing Editor, Phone: 610-327-4820, Fax 610-487-2883. E-Mail: Ryokl@svahsolutions.com for approval to reprint, excerpt or translate articles.
Healthcare Purchased Services Magazine
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From the Publisher's Desk
Robert T. Yokl
Price Is A Moving Target: How To Measure It Robert T. Yokl
Everyone would like to obtain the best prices on their purchased services contracts, but price is a moving target. That’s because there are too many moving parts on any purchased services contract. Therefore, I’m willing to bet that very few purchased services contracts are exactly alike, thus, making it almost impossible to benchmark by traditional methods. For example, a food service contract to manage your food service department could include the following under its scope of services: Hiring your current workers, buying food, running your cafeteria, and running your coffee shop. So, how can you have an apples-to-apples comparison? You will need to treat your purchased services contract benchmarking like a home appraiser would, since no house is exactly alike. A home appraiser will compare features of a client’s house to features of a comparable house, starting with square footage. Then, they will add and subtract features (e.g., pool, two-car garage, deck, etc.) comparing to similar houses that sold recently within a few mile radius. That’s what you would need to do with your own food service contract to accurately benchmark it. Here is a partial comparison we might use for a typical food service contract to benchmark it:
Food Service Contract Characteristics Patient Meals Served Annually Cafeteria Meals Served Annually Food Purchased by Contractor Contractor Owns Employees Payroll Contractor Manages Coffee Shop Contractor Provides Consignee Service Contractor Shares in the Cafeteria Profits
Metrics 45,263 26,921 Yes Yes Yes Yes Yes
Comparable Hospitals 43,298 27,892 Yes Yes Yes Yes Yes
This comparable list would then form the basis for benchmarking this food service contract, hence ensuring that we are comparing the contract’s characteristics as closely as possible. By the way, it is almost impossible to find one hospital that will meet all comparables, so you might need to use more than one hospital for each of your contract characteristics comparables as we did.
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From the the Managing Managing Editor’s Editor’s Desk Desk From
Robert W. Yokl
Robert RobertW. W.Yokl Yokl
Important Lessons for Continued Results with Purchased Services Value Analysis Teams
A great way to focus your Purchased Services Cost Reduction and Sustainability Program is to utilize a value analysis team to review, analyze, and monitor your purchased services on an ongoing basis. Even though you may have some contract managers already given the responsibility to facilitate the contracting process, you can still gain high savings and overall functional value from your purchased services with a value analysis team approach. Following are some important lessons to consider when deploying a purchased services value analysis team that have been proven to work for me and my firm for the past 29 years in working with hospital purchased services. 1. Have a Plan for How Your Purchased Services VAT is Going to Operate: You need to have some forethought on how you want your new purchased services VA team to operate. The old notion of forming a team full of members from every segment of your health system in order to cover all of your bases is not a productive approach. Nor do you want to have a team that merely turns the value analysis contract project right over to the contract owner (department head/manager) every single time. They already have full control of that contract, so what makes you think they are going to do anything different for a VA team than they were before? A better option would be to organize your team with good stewards (department heads and managers) who will act as project facilitators and work with those department heads and managers who may or may not be part of the team. You want the reviews to work with the contract owners but not turn the project over to someone who is biased and will not be open to allowing anyone else to handle their contracts. This is tough, as everyone thinks that Medical Records should handle the records management contract and therefore vet the VA project. Those departments more than likely don’t want to change a thing. Yes, they do want to save money if they can, but they do not want to engage in a VAT process.
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Featured Article From the Managing Editor’s Desk
T. Yokl Robert W. Yokl
A best practice approach would be to have some other team member who does not have ownership of the contract and/or purchased service become the project lead to simply facilitate the project. In the example of Records Management, you can assign a member from Finance, Supply Chain, Lab, etc., and they will coordinate with Medical Records, Radiology, and Finance, as well as Supply Chain who have access to all the group purchasing contracts. An unbiased approach engaging customers and stakeholders will save big every time! 2. You Don’t Have to Wait Until a Contract Comes Due to Perform a VAT Review: When talking to CFOs and supply chain leaders about purchased services programs, they always want to start with all of the contracts that are upcoming for renewal or new for approval. That is great but they more than likely are not the top areas to go after to find big savings in your purchased services. This cyclical approach will go on for up to two to four years and organizations cannot wait that long for big savings in areas that may or may not be contractually based. Instead, you should be deploying some form of benchmarking or fiscal year-over-year reporting for your major purchased services categories so you can go after big savings that are popping up on these reports. Plus, in most cases if a purchased service is running high you don’t need to wait for the contract to run out; you can look into the who, what, why, where, and when, and reduce costs within the existing contract. We do this all the time with our clients, and you can too! 3. Expect Bigger Results, Then Train Your Teams to Bring You Those Results: Purchased services has been around for many years and most department heads and managers have been involved with their own purchased services contracts, but few if any of them have had any formal purchased service cost reduction/value analysis training. The thought of forming a purchased services value analysis team that is responsible for reviewing 35% to 45% of your total non-salary budget and telling them to just go save money is unwise. Yet, this happens quite often and with little or no knowledge to guide their work, the VAT members end up only scratching the surface of the savings that they could potentially achieve. A simple one-day training or webinar program for each of your members is all you need to give them a thorough understanding of how to address purchased services in a VAT environment. A little bit of money spent here will save you millions!
I could go on and on with important lessons for purchased services value analysis teams, but these are my top three that I feel are needed the most in health systems throughout the country. Even though group purchasing organizations are now offering savings opportunities on purchased services contracts, that is only a small percentage of the money that is on the table in big savings. The majority is going to be found by your purchased services value analysis teams, but they need to be set up to succeed. If you only form a team and tell them to go save money, you are going to get meager results, but if you follow these important steps, you will fuel the purchased services VAT now and every year for the long term.
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A UNIQUE APPROACH TO PURCHASED SERVICES MANAGEMENT NO TWO FACILITIES ARE ALIKE So We Don’t Offer a One-Size-Fits-All Approach
Reducing Your Purchased Services Cost with Activity-Based Cost Management You could be leaving 11% to 18% or more in new non-labor savings on the table untouched. It’s a little-known fact that most healthcare organizations have overlooked these savings opportunities or have only nibbled around the edges of these savings. What our Activity-Based Purchased Services Expense Management Software can do for you is to ensure that every dollar that can be saved in this category of purchase is saved. For more information or to sign up for a FREE demo, visit our website at:
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Healthcare Purchased Services Magazine
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Featured Featured Article Article
Robert T. Yokl
Purchased Services as a Recovery Focus in Healthcare Tim Ingram, MBA, CEO at 60:60 Consultancy
Historical: Finding Your Axioms Everyone in healthcare has witnessed the devastating impact of Covid-19, both personally and professionally. We’ve seen hundreds of articles stating the need to start recovering from the effects of Covid-19, and there has been a steady uptick of elective surgeries and services. Yet, healthcare still stands to lose over $300 billion in 2021. Now is the time to examine new methods and partners to financial recovery. A firm footing in the recovery process is necessary to support and shore up the economic bedrock of healthcare. Business as usual no longer possesses the exact definition of 2019 within healthcare. Supply chain management still needs to focus on the axioms to rebuild a new strategic action plan. The wheels of healthcare stop for no viruses. We are 24/7/365, and SCM supports the organization’s mission during those same hours.
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Featured Article
Robert T. Yokl Tim Ingram
Refocus: “No Margin, No Mission,” Establish a Starting Point For lack of a better term, the cogs of healthcare are greased with a healthy margin. But, like it or not, a profit is required to keep the doors open. Purchased services are an excellent place to start in identifying opportunities. Like many healthcare organizations, these administrative areas were neglected because of Covid-19. Purchased services are a treasure trove of possibilities. The market is starving for an uptick in business, and the landscape is ripe for a relook at your 3 rd most significant operational spend. NOTE: I would advise that leadership take a look at supply chain management and ensure staffing is sufficient to manage purchased service contracts. In addition, establish a committee to review all contracts semi-annually. Leadership needs to understand the depth of this spending and provide the resources to manage it.
Technology: Build a Digital Library CEOs and CFOs are currently focusing on technology upgrades, revenue recovery, operational expense reduction, and staffing. All of this intertwines with pricing and utilization. Competitive positions support the premise of creating a digital library of services categorized by modalities, departments, and financial performance. Constructing a scorecard process is essential in adding value to your utilization management process.
Dos and Don’ts I have written other posts and articles outlining the dos and don’ts of a contract, but there are other practical matters at hand. For example, part of the recovery process must involve strong partnerships with ALL stakeholders. Therefore, it is essential to involve them and commit to a new and dynamic, progressive, strategic solution to solidify fundamental and measurable objectives.
Opportunities: Focus on Your Most Significant Opportunities There are several opportunities inside revenue and nonrevenue-focused areas such as bill only, electronic invoice payment, utility management, air and gas, print, waste, and 3PLs. It’s challenging to move away from organizational norms and long-time partners; however, it is worth reviewing new
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Featured Article
Robert T. Yokl Tim Ingram
players, new processes, and alternative sustainable solutions. The market has several companies that focus on purchased services within healthcare. However, how do you determine which one is a good partner? A disinterested party can assist in identifying a possible fit. The ROI, in most cases, pays for the service and reduces operating costs. The focus is to build a more responsive Management Action Plan (MAP) to address current and future partnerships. There exists ample opportunity to build in cost avoidance within any given service line. There are no shortcuts to managing contracts, and your end-state should stand on a solid foundation of intelligent data, knowledge, experience, and a familiarity with the organizational business model.
Know When to Pivot Review, validate, measure, and repeat. My experience over the past 40 years has taught me not to anchor myself on a “one-way-fits-all approach.” Instead, the most progressive companies know when to pivot. Enjoy the journey!
Tim Ingram, MBA, CEO, 60:60 Consultancy Group (Veteran Owned), Interim Leadership and Supply Chain Operations & Cost Management Consultancy Tim is a highly experienced healthcare professional with 40+ years of proven success in supply chain and materials management. He is instrumental in deploying integrated processes throughout multiple market-driven analytical tools, complemented with intuitive insight in supply chain management. Tim has extensive experience executing a proven formula in building and developing strong teams, identifying operating efficiencies, and evaluating opportunities for cost improvement. Tim is a veteran of the USAF. Contact Tim Ingram at tim.ilogisticshs@gmail.com
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LegalPractices 101 Best
Robert T. Yokl Robert W. Yokl
Starting Down the Path to Continually Finding Substantial Savings in Purchased Services Robert W. Yokl, Vice President, SVAH Solutions
How do you find savings within purchased services areas that are primarily all covered by specific contracts that are running, on average, about two to three years in length? Most would strategize that if your CFO wants you to start saving money on purchased services contracts, you would just start with the most recent contracts that are coming due for renewal and the new services, software, and repairs, and scrutinize them. But does that really give you the best opportunities for big savings now? The answer is no, you are only looking at the contracts that are up for renewal or new contracts that may have little or no juice to squeeze for big savings. By taking the cyclical route of contracts, you commit yourself to taking what is coming due next instead of being more strategic in finding the big savings opportunities in all of your contracts now!
To Be Strategic with Purchased Services You First Have to Be Organized to Save When you look at the purchased services budget of a healthcare organization you see a huge chunk of dollars that are comprised of contracts for vendors for various services, software, maintenance, and repairs. The challenge with these types of contracts is that there are up to 350 major categories
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LegalPractices 101 Best
RobertW. T. Yokl Robert Yokl
of purchased services contracts and hundreds of smaller categories. There is a lot of space to cover within these major and minor categories, as well as all of the unique requirements that these contracts fulfill. How do we see the forest for the trees, or in this case, how do we see the big savings through all the purchased services contract noise?
Data Is Your Friend. Embrace It and It Will Help You Win Big. Ignore It and It Will Come Back to Bite You Every Time When you mention words like key performance indicators, cohort benchmarks, and fiscal year to date reports, you will more than likely get a cringing look from the department head or manager who you are reviewing these with. That’s okay, as these reports will help you be more strategic as they will be volume-based measures that will calculate spend by the measure to give you a cost per case, square footage, patient day, etc. This information is invaluable when you start to compare it to your historical, system-wide, and cohort benchmarks. They will show real opportunities that will be justified (only a small percentage are), but the reality is that the majority need investigation and will bear big savings. Department heads and managers won’t be able to talk away these big savings like they have in the past which will give you the fuel for your savings engine.
Saving Big with Purchased Services is a Continual Moving Target When you continually report/measure, monitor, and control your expenses with reporting systems that draw on accounts payable and volume-based statistics, you will see where your eb and flows are happening any given month, quarter, and/or fiscal year to date period. When you see costs rising in a particular category that no one can explain, you can quickly investigate it and take mitigating action sooner which will help save big dollars from being lost from your bottom line. The alternative is to not have any system and to “feel” like your costs are “okay”, but you really wouldn’t know because you are not reporting these things out on an ongoing basis.
Wouldn’t You Rather Know Where Your Savings Reside? Don’t assume that everything is going well. If you are a stand-alone hospital, you want to at least track everything comparing year over year with some best practice cohort benchmarks mixed in to alert you to areas you may want to pay more attention to. If you are a big system, you have a huge advantage as you can track year over year and add cohort benchmarks, but you have a major element and that is your own internal system-level benchmarks. Your hospitals are all buying through the same contract, so why is Hospital A doing 35% better than Hospital B? You would have the power to know that and to learn from your own best practices to save even more. Knowledge is power with purchased services. You want to exploit your data to go to the next level of big savings with purchased services. Even better, you don’t have to wait until contracts expire for you to investigate why a particular contract and/or category is running over by 17% halfway through your current fiscal year over the previous fiscal year. You can go after it now. You have so many more options when you finally know where you are doing well and where you need to focus your attention. It’s time to take your strategic purchased services control to a whole new level today.
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Volume 1/Issue 1
Legal 101101 Contracts
Robert T. Yokl Robert T. Yokl
Fundamentals of a Contract: What You Don’t Know Could Hurt You Robert T. Yokl, President, SVAH Solutions
For those who didn’t take contract law in a business school, I thought it was important to go over the fundaments of a contract to help you avoid pitfalls such as: (i) contracts never intended to be contracts, (II) agreements that fail as contracts where the opposite was intended, (iii) contracts so unclear as to be interpreted contrary to what one side intended, (iv) contracts neglecting to cover one or more of the main points, and (v) contracts impossible of performance because of external impediments…(such as) regulations.1 Now let’s review the basic elements of any contract:
Offer: An offer may be considered a promise in return for a promise to perform a service or an act by the other party. An offer isn’t an invitation to negotiate or a letter of intent since they can be withdrawn at any time. An offer must be specific (preferably in writing) such as a detailed proposal to maintain your six elevators for one year at a cost of $10,923.00 annually. However, if the so-called offer states that “other terms will be negotiated at a later date” this isn’t an offer. Acceptance: An acceptance of an offer (again, hopefully in writing) can’t be assumed by the other parties’ silence or by accepting some terms and rejecting others. For example, if you make an offer and don’t hear from the other party or the time runs out on your offer, you don’t have an agreement.
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facebook.com/powersupplymedia Healthcare Purchased Services Magazine 16
Legal 101 101 Contracts
Robert Robert T. T. Yokl Yokl
This is also the case if the party accepts your offer, but wants to further negotiate price, credit terms, and deliverables. This isn’t an acceptance either. It can be considered a counteroffer that must be renegotiated. However, if the offer invites shipment of commodities with fixed terms, and the shipment is made, it is a good probability that your offer has been accepted. The point here is that you can’t decide on what terms and conditions you will accept. You must accept all of them as is or you don’t have an enforceable contract. Consideration: All contracts have a third component called “consideration” or doing something (e.g., money, trade, barter, etc.) you were not bound to do, even if it is only giving $1.00 for services rendered. Otherwise, your offer is an unenforceable promise, such as, offering to give $10,000 to your favorite charity. As Richard Wincor says, “A contract in one sense is an actionable promise, or an agreement which the law will enforce or for whose breach it will afford a remedy.” These are the three fundamentals of a contract that are required to be considered an agreement. There are also exceptions to these rules called Reliance and Waivers, but these are outside the scope of this article. Finally, verbal contracts that fit the above form can be enforceable, but hard to prove. Therefore, make sure all of your terms and conditions are in writing to prove any claims or disputes. 1
Contracts In Plain English, Richard Wincor, McGraw Hill
Disclaimer: The information provided in this article is not to be considered a legal opinion. Its purpose is informational only. Please contact an attorney for specific guidance on any legal matter.
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Legal Service101 Quality
Robert T. Yokl Robert T. Yokl
Pre-Contract Renewal/Bid Customer Survey Can Be A Real Eye Opener Robert T. Yokl, President, SVAH Solutions
It All Starts with Conformance to Requirements One tactic that I have found invaluable in my quest to improve purchased service quality is a “PreContract Renewal/Bid Customer Survey” conducted within 90 days of a contract renewal/bid. The survey would be sent to all customers and stakeholders of a renewal contract. From my experience, it can make all the difference between who you renew or bid your next contract to. It all starts with conformance to requirements!
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Legal 101 Service Quality
Robert Robert T. T. Yokl Yokl
Naturally, you will have your own survey questions for your “Pre-Contract Renewal/Bid Customer Survey” that could be much longer and more complex than my example. My point here is that you will be able to bid/negotiate your renewal contracts more effectively by evaluating your current contractors’ performance. This tool opened my eyes about my contractors’ conformance to requirements and service quality because, in many survey results, the contractors didn’t meet my customers’ minimum requirements.
Who’s In Charge of Your Purchased Services? I would like you to look around your hospital and then ask yourself, “Who’s in charge of my hospital’s purchased services?” I can assure you, if you are honest with yourself, that the answer at most hospitals is - no one! The reason for this circumstance is that this function, at most hospitals, has been outsourced to your department heads and managers with disastrous results. We have seen department heads sign purchased service multi-year contracts that have cost their hospitals hundreds of thousands of dollars a year just due to benign neglect. Other department heads have missed deadlines on contract renewals that roll over for another five years without any renegotiations. Or, there have been instances when they have committed their hospital to a copier contract that had no cancellation clause. To stop this train wreck, it is now time for supply chain professionals (as other industries have been doing for years) to step up to the challenge of administering these contracts from start to finish, since there is no other department in your hospital that is more qualified to do so. You have the training, discipline, ethics, and know-how to rein in your hospital’s multi-million dollar portfolio of purchased service contracts.
I know you don’t have the time or staff to do so now, but that doesn’t mean that you should continue to let these millions of dollars in contracts be outsourced with dire consequences to your department heads and managers. It’s time for you to develop a proposal to your senior management to take over this function that can save your hospital 11% to 18% right out of the gate. I call this building a case for change by showing your C-suite how much they can save on their purchased service contract portfolio by having your supply chain department professionally manage and control these contracts. Why let this madness continue any longer?
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Imagine Losing Up to 17% or More of Your Overall Annual Savings Implemented from All Sources The $5.2 Million in Projected Savings for Your Hospital is Now Only $4.3 Million - Net Loss of $884K to Your Bottom Line
The $12.5 Million in Projected Savings to Your Health System is Now Only $10.4 Million - Net Loss of $2.1 Million to Your Bottom Line
How Could This Be Happening? Because 96% of All Supply Chain Organizations Are Only Tracking Savings on the Front End After Implementation and Not Tracking Them Any Further for Actual Real Time Results Throughout the Year Find Out How You Can Fix Your Leaky Bucket Scenario
www.SavingsValidator.com Volume 1/Issue 1
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LegalManagement 101 Cost
Robert T. Yokl Robert W. Yokl
3 Major Cost Savings Beyond Price Elements for Your Purchased Services Program Robert W. Yokl, Vice President, SVAH Solutions
Most organizations look at purchased services only from a contract price standpoint to the value provided by the vendor. This keeps the negotiations and transactional aspects of the vendor relationship very simple in the purchased services side of supply chain. Now with group purchasing having valued contracts in the purchased services space, this only enhances the contract price savings for supply chain professionals. I guess this means our job is done with purchased services, right? Or are there still major dollars being left on the table? The answer is yes, because you can still look beyond price to save even more, and you don’t have to wait until the contract renewal process to go after these savings.
8% to 15% Savings Beyond Price Possible in Purchased Services Purchased services are no different than products in that there is waste, inefficient use, and featurerich services that you may or may not be fully utilizing. Traditionally, supply chain has been limited to only working on the contract portion of purchased services and the full control of the in-use costs of the service offering was handled by the respective contract owner, which in most cases is the department heads and managers.
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LegalManagement 101 Cost
RobertW. T. Yokl Robert Yokl
Department Heads and Managers Like to Be Lone Rangers When It Comes to Purchased Services, but They Don’t Have the Time to Wring the Towel Dry on Savings Let’s keep in mind, the first job of department heads and managers is to operate their respective departments for optimal patient care or supporting patient care. Most have not been trained in any type of supply chain or cost management discipline such as value analysis or benchmarking their purchased service agreements. They may have sat on a value analysis committee from time to time, but in most cases, value analysis did not do much with purchased services other than to defer to the respective department head and manager to handle the project/contract initiative.
How Do We Find a Way to Support Better Purchased Service Saving Beyond Price Results and Make Everyone’s Job Easier in the Process? Centralize the Purchased Service Contracts Under Supply Chain for Better Tracking & Support: Fact: The supply chain department at any hospital or health system does not buy clinical products or services nor do they make any decisions on what the end customer uses. The nurses, doctors, and other clinical professionals make the call on which products and services they will deploy. What supply chain does is facilitate the best contracts, negotiations, sourcing, value analysis, and manage the vendor relationship. When it comes to purchased services, department heads and managers of Laboratory, Dietary, Facilities, etc., need to realize that they are still driving the bus on decision making, but they have this world class resource in their organization that they can tap into to drive their costs down even further. Let the supply chain department facilitate the contracting with the confidence that the departmental owners still have their same say in the decision-making process and everyone wins. Give Them Reporting to Control Their Purchased Services and Make Better Decisions: In a perfect world we would call upon our department heads and managers to dive deeper into their departments’ purchased services to further wring the towel dry on purchased service costs once and
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LegalManagement 101 Cost
RobertW. T. Yokl Robert Yokl
for all. The challenge here is that there is very limited information at hand for department heads and managers to manage their purchased services in a way that we can with products. The only empirical data they can use is either the invoices that come across their desks for approval or vendor reports that they must proactively request from the vendors. There are systems out on the market that can simplify this process and give great reports that include benchmarking/key performance indicators, savings reports, and predictive analysis reports. Once you deploy a purchased services reporting system, you will wonder why you didn’t do this sooner because the information at hand is so valuable and results oriented. Most importantly, you will be able to share these benchmarks and analysis reports with the department heads and managers who own these purchased services. These reports will point you and your end customers in the right direction on whether to invest the time and effort into a purchased service initiative and whether the results will be worth it. Create a Purchased Service Value Analysis Team: There are no Lone Rangers in the purchased service value analysis process. You need a team to work with in order to objectively find ALL the savings beyond price opportunities within your purchased services. A Purchased Services Value Analysis Team will help you quickly put together adhoc/working teams for each major purchased service you will be working on. Whether it is during the contracting process or trying to find waste and inefficiency, this will put a formal process in place with the right stakeholders, subject matter experts, and users. If not negotiating a contract, you can even enlist your existing vendor(s) to be part of the process to fine-tune the contract and act on any and all savings beyond price opportunities that are found. There is no silver bullet that is going to dramatically improve your purchased services program but there are a bunch of pieces to the puzzle that you can employ that will be highly effective, give great results, and not create a ton of work for anyone. The key is to start to add these savings beyond price elements to your program or start a purchased services program if you have not already done so. There are up to 8% to 15% in new savings opportunities beyond price in purchased services, but you have to take action in order to reap the rewards.
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How Is Your Organization Managing the Purchased Service Hot-Potato?
Advanced Purchased Service Analytics Average $2.1 to $4.1 Million in Savings Per Hospital
Purchased Service Advantage
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A System That Does All the Heavy Lifting So You Can Achieve All of Your Savings and Improvement Goals
www.PurchasedServiceAdvantage.com
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Negotiations 101
Robert RobertT.T.Yokl Yokl
What’s the Right Temperament for Successful Negotiations? Robert T. Yokl, President, SVAH Solutions
If you remember the Kenny Roger’s song “The Gambler,” then I’m sure you will recall the lyrics, “Know when to hold them, know when to fold ’em, know when to walk away, and know when to run. You never count your money when you’re sittin’ at the table. There‘ll be time enough for countin’ when the dealin’s done.” This gambler’s philosophy is closely aligned with the right temperament for successful negotiations. You need to be cool, calm, collected, and unemotional to win. This is how Alison Wood Brooks, Associate Professor, Harvard Business School, describes how particular feelings influence what happens during deal making. Brooks has observed these eight best practices that can either enhance or doom your negotiations: 1. Bringing Anger to a Negotiation is Like Throwing a Bomb into the Process. It is rare that exhibiting anger in your negotiations will bring about the desired results. In fact, it will generally end poorly or create an impasse in your negotiations. Experienced negotiators look for ways to expand the pie through collaboration, brainstorming, and searching for alternative solutions rather than throw a bomb into the negotiation process.
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Negotiations 101
Robert Robert T. T. Yokl Yokl
2. Avoid Anxiety Before and During the Early Stages of Negotiations. It’s not unusual for negotiators to feel anxiety before and during the early stages of negotiations, which often leads to the urge to exit quickly from dealmaking. Brooks observed that, “Anxious negotiators made deals that were 12% less financially attractive than those made by negotiators in neutral group(s).”1 It’s also a known fact that many negotiators make their counterparts feel anxious on purpose. A much better way to avoid anxiety is to train, practice, and rehearse being patient and persistent, or have a third party who is a calmer individual be your negotiation partner. 3. Manage Other People’s Emotions as Well in the Negotiations. You are rarely alone with your counterpart in negotiations. There are generally a few people at the negotiation table on your side and on theirs. Therefore, be observant how other people are feeling. Ask pointed questions based on your perceptions of the other party’s emotions. Don’t be afraid to exert your influence on your counterpart’s emotions by injecting humor to cool down their anger, or exhibit displeasure with their overconfident or pushy behavior. 4. There are Cases When Feeling Angry Can Lead to Better Outcomes. Research by Gerben van Kleff at the University or Amsterdam shows “that in a onetime, transactional negotiation with few opportunities to collaborate to create value, an angry negotiator can wind up with a better deal.” However, be aware that negotiators who show anger during negotiations can damage the long-term relationship with the parties involved. 5. When a Negotiation Concludes Too Quickly, Participants Tend to Feel Dissatisfied. Parties of the negotiation often regret missed opportunities and errors of omission rather than errors of commission, such as when they don’t ask enough questions, propose solutions, or brainstorm new alternations. Therefore, it is best to plan for a number of negotiation sessions as opposed to wrapping up your negotiations in one single meeting. This way you can prepare better for each session and won’t end up with buyer’s remorse. 6. Building Rapport Before, During, and After a Negotiation Can Reduce the Odds That the Parties Will Become Angry. Seasoned negotiators break up their negotiation sessions with breakfasts, lunches, and dinners with their counterparts so they can get to know them personally. This way there is more of a chance for building trust, cooperation, and win-win solutions instead of a winner-take-all attitude.
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Negotiations 101
Robert Robert T. T. Yokl Yokl
7. Disappointment Can Be a Powerful Force When It’s Expressed to the Other Party Near the End of the Negotiations. If you aren’t feeling satisfied at the end of a negotiation, you can express your disappointment to encourage the parties to look again at the deal and consider whether they want to change some of the conditions in your favor. Typically, people like a positive outcome to their negotiation, so you have a good chance of renegotiating your sticking points. 8. The “Winner” In a Deal Should Not Gloat as the Negotiations Wrap Up. It’s like spiking the ball in football when you make a touchdown. Although it’s human to celebrate a win in negotiations, don’t gloat, boast, or brag about your negotiated deal or the other party could decide to cancel or renegotiate their contract. The best way is to leave the negotiations with your counterparts feeling that they had a winning hand, too. As I alluded to in my opening, negotiating requires some of the same skills as gambling: A deliberate focus, playing the odds, reading people, understanding others’ positions, and bluffing when necessary. Unlike poker, where the winner takes all in the pot, a negotiator’s goal is to have a win-win outcome that satisfies both parties of the negotiation. Hopefully, these eight best practices will bring you closer to this goal. 1
Brooks, A. W. (2015, December). Emotion and the Art of Negotiation. Harvard Business Review. https:// hbr.org/2015/12/emotion-and-the-art-of-negotiation.
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The Last Word
Robert T. Yokl
Are You in Control of Your Purchased Services? One of the Last Bastions of Non-Labor Expense Savings Robert T. Yokl, President, SVAH Solutions
It’s my guess that out of the 6,090 hospitals in the United States, 30% to 50% of them aren’t effectively controlled by their supply chain departments. This creates an opportunity to open up a whole new source of savings (equal or greater than supply expenses) for those “wait and see” supply chain executives. Isn’t it time to rethink your supply chain mission?
6 Reasons Why There are a number of reasons why supply chain departments, as I see it, are not effectively managing and controlling all of their healthcare organization’s purchased service contracts as follows: 1. Don’t Have Enough Resources to Do So: To have an effective purchased services contract program, your supply chain department will need, I estimate, one FTE per ten million contracted dollars dedicated to this task. However, your return-on-investment by doing so is, at minimum, 10:1 in new savings. Just as important, you will immediately reduce your healthcare organization’s liability by 100-fold. This is because contract professionals will now be appointed to this assignment vs. your
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The Last Word
Robert T. Yokl
untrained department heads. It’s really a no brainer decision! 2. Won’t Be Compensated for Doing So: Supply chain professionals’ plates are already full, and many feel they won’t be compensated for taking on the new responsibility of purchased service contracts. I beg to differ! If you can show your senior management that you can increase their bottom line by taking on purchased services, I’m sure they will compensate you at bonus time or at your next review. On the other hand, don’t let consultants be hired to do your contracting job, thus guaranteeing that they will receive the compensation you were hoping to obtain for yourself. 3. Aren’t Directed to Do So by Senior Management: Too often, your senior management don’t know what they don’t know. Therefore, it is your job to enlighten them about the benefits of reining in their healthcare organization’s purchased services’ cost. That’s why they hired you. You are their in-house expert in this area of your hospital, system, or IDN’s operations – not them. 4. Department Heads and Managers Are Still in Control: It is always easier to let old habits continue, but at the same time it could be dangerous to your hospital, system, or IDN’s bottom line. It’s been our experience, when a healthcare organization delegates its purchased services contract management to its department heads and managers, that it is losing millions of dollars annually. It also leaves the door wide-open to fraud and abuse! So, why would you want to continue this disastrous practice?
5. No Reporting Systems to Manage and Control Purchased Services: Yes, purchased services require a new database and analytics to capture and report on the millions of contract dollars your healthcare organization spends annually. However, the cost is minuscule compared to your return on investment on cost savings. 6. No Benchmarking to Measure Your Purchased Services’ Contract Performance: Price savings should be just one component of your purchased service cost reduction strategy. Your bigger cost savings comes from comparing the best practices (benchmarking) of your peers to your own. This can be accomplished by establishing or contracting for peer purchased services benchmarks for your cohort group. This way you can attack your total purchased services contracting cost, not just the price at the pump.
Last Bastion We all are looking to increase our savings yields in any given year, so why aren’t all supply chain professionals attacking their purchased services’ cost? Some of the answers are listed above but let me know (bobpres@SVAHSolutions.com) if you can think of any others. To summarize, purchased service contracts are the last bastion of non-labor savings for healthcare organizations. Therefore, we must look for and eliminate all of the reasons for supply chain not managing them effectively until it is considered a best practice at all hospitals, systems, and IDNs.
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