The field of healthcare procurement is a prime area for innovation, with many looking to apply strategies from other industries to drive efficiency and cost savings. However, a closer look at the unique challenges and complexities of healthcare procurement highlights the importance of specialized expertise. In a field as complex and regulated as healthcare, it’s crucial to work with experts who specialize in healthcare and understand that generalized business benchmarks don’t always add up and other business operations tactics don’t effectively translate.
Approximately 20 - 25% of a hospital’s total expenses are related to indirect spend and purchased services
The unique challenges of healthcare procurement
Many procurement firms have spent years optimizing processes in industries such as retail, consumer packaged goods and financial services. While efficiency is crucial in any sector, healthcare procurement is uniquely complex due to stringent regulatory requirements, patient safety concerns and intricate supplier relationships. Applying cost-cutting benchmarks from industries like retail or finance to healthcare could overlook critical factors such as patient outcomes, quality of care and compliance with medical regulations. Healthcare-specific metrics are needed to foster sustainable savings in healthcare purchased services.
Unlike in traditional industries where indirect procurement primarily focuses on operational efficiencies, healthcare purchased services directly impacts essential services such as facility sanitation, IT infrastructure for patient data security, and supply chain resilience in the face of pandemics or medical crises. Integrating business strategies from unrelated sectors without careful and strategic deliberation could potentially compromise patient care and other core hospital operations.
The value of healthcare expertise
Hospitals operate under stricter budget constraints and ethical considerations than traditional businesses, and cost savings must not come at the expense of patient safety, regulatory compliance or operations.
Hospitals require procurement partners who understand compliance with FDA regulations, medical supply chain logistics and non-clinical services like food and nutrition, security, environmental services, facilities and construction. Efficiency without healthcare-specific experience is not enough.
Regional health system realized $11 million in aggregate savings across multiple purchased services categories
A regional health system faced several challenges in managing its purchased services, including vendor fragmentation, a lack of centralization and the need for cost optimization. Vizient experts used their specialized knowledge and the Purchased Services Analytics platform to leverage data and identify potential areas for improvement. By collecting and evaluating data, the Vizient team identified opportunities for vendor consolidation, cost reduction and better pricing.
The outcomes were significant: sustainable cost savings were achieved through vendor consolidation and renegotiation of contracts, while a centralized approach enhanced coordination and communication, leading to streamlined processes and improved operational efficiency across all categories.
Established GPOs and healthcare procurement firms manage indirect spend through specialized healthcare procurement teams that focus on service-based contracts. These teams understand the complexities of hospital operations and establish credibility through decades of healthcare-specific success, delivering tangible cost savings by driving contract compliance, optimizing utilization, and negotiating pricing aligned with strategic financial and operational goals.
The true path to savings: experienced healthcare partners
Healthcare procurement is not an industry where experimentation should take place at the expense of patient safety, regulatory compliance or supply chain integrity. Health systems seeking to optimize non-clinical spend should look to established healthcare procurement firms with proven results in medical and non-medical spend categories. Experienced GPOs and healthcare-specific procurement organizations have developed tailored strategies for managing hospital supply chains, including indirect procurement. Some of these strategies include:
- Centralizing contract management across facilities to reduce fragmentation and increase visibility
- Leveraging category expertise to identify savings opportunities in complex service-based spend areas
- Implementing performance tracking and vendor accountability metrics to sustain long-term value
While innovation in healthcare procurement is essential, it must come from firms that understand the industry’s complexities. A fresh perspective is valuable, but it must be grounded in a deep understanding of healthcare-specific challenges and solutions. Instead of looking outside the industry for procurement solutions, health systems should invest in healthcare-specific procurement expertise — where savings, efficiency and patient care are equally prioritized.
For more information, contact Blaine Douglas or visit Vizient indirect spend and purchased services.
Healthcare system standardizes purchased services across 16 facilities saving $16 million
A healthcare system with 16 hospitals faced significant financial shortfalls due to lack of standardization in purchased services.
Partnering with Vizient, the system's leaders and departmental heads developed tailored solutions to address operational variations and concerns about care quality. Vizient implemented standardized contract terms, centralized vendor management and introduced KPIs with individualized program management.
These strategies reduced waste, improved utilization and standardized pricing, leading to $16 million in savings over two years across HR/staffing, IT, administration, patient services, revenue cycle and facilities service lines.