How Utilizing Data Analytics in Purchased Services Can Lead to Significant Savings for Healthcare Organizations

Purchased services in healthcare include many outsourced tasks in both clinical and non-clinical areas. These services can include:

• Clinical services like laboratory tests and imaging
• Facilities and support services such as maintenance and cleaning
• Finance, human resources, and health information management functions
• Biomedical equipment and maintenance
• IT, telecom, telehealth support
• Administrative services like billing and staffing

Together, these contracted services make up a large part of hospitals’ expenses outside of employee wages. Purchased services can be up to half of non-labor costs. This means there is a big chance to save money here.

But managing purchased services is hard because contracts are often scattered, data is not always clear, and it is tough to track what services were really done. Hospitals might pay twice for the same service or pay for services they never got. Also, vendor contracts may not be set up well, with prices too high or terms that do not fit current needs.

The Role of Data Analytics in Managing Purchased Services

Data analytics helps healthcare organizations control costs for purchased services. By gathering and studying spending data, managers can find waste and plan ways to cut costs.

One big benefit of data analytics is that it shows clearly how much is spent and where. For example, a company called SpendMend says carefully checking invoices line by line helps find billing mistakes and chances to save money. Christine Pearson, CFO at AnMed Health System, said they got back hundreds of thousands of dollars by checking invoices carefully, and saved over $1 million by renegotiating contracts after studying the spending data.

Hospitals can sort spending into many categories. This helps them see which areas cost the most, which vendors they use, and where there might be overlap or waste. Hospitals like Memorial Hospital have saved a lot by using analytics tools to compare costs and review contracts, said April LaFontaine, their Chief Administrative Officer.

Typical Savings Achieved by Healthcare Providers

Hospitals and health systems often save a lot by using data analytics with purchased services. Industry data shows that:

• Savings usually range from 10% to 30% by improving contracts and managing vendors better.
• Checking invoices carefully and renegotiating deals can recover millions and lower rates.
• SpendMend and its partner VIE Healthcare have helped save nearly $1 billion in non-labor costs for healthcare groups.
• Some service areas like operating rooms and IT see especially big benefits from focused data work.

The operating room costs can be half of a hospital’s total costs and make up most of its revenue. Improving purchased services and supplies there, like physician preference items (PPIs), can have a big effect. PPIs are about 15% of a hospital’s non-labor spending, so cutting unnecessary differences and fixing contracts can help profits.

Kerry Loudermilk, Senior Vice President and CFO, said their group cut costs in many departments such as Clinical Engineering, Laboratory, and IT by using data-driven spend management. This shows that controlling purchased services expenses can affect many areas.

Challenges in Purchased Services Spend Management

Even though savings are possible, hospitals face many challenges in managing purchased services:

• Data Fragmentation: Data comes from many systems or vendors, so it is mixed up and unclear.
• Lack of Standardization: Contracts have different structures and terms, making them hard to compare.
• Unstructured Invoice Data: Contracts can be complicated and do not always match charges line by line.
• Supplier Fragmentation: Hospitals might use many vendors for the same service, which weakens buying power and makes negotiation harder.
• Billing Errors: Duplicate charges or paying for services not given can hide in many invoices.

To fix these problems, healthcare groups need to invest in technology and good processes for gathering data, sorting spending, and analyzing it regularly.

Using Benchmarking and Market Data to Improve Purchasing

Benchmarking is important for managing purchased services spending. By comparing costs, contract terms, and how well services perform with other hospitals and national averages, managers can find where prices are too high or services can improve.

Benchmarking helps hospital leaders keep vendors responsible, renegotiate contracts, or reduce the number of suppliers. April LaFontaine spoke about how benchmarking helps understand spending habits and make better contracts. This method often shows how to avoid inflated prices or services that are not needed.

Many hospitals also use contract data with monthly spending reports to watch trends, measure savings, and keep costs steady.

Improving Purchased Services Through Centralized Spend Management

One good practice is to manage purchased services from a central point. If departments each make their own contracts, it can lead to confusion, inefficiency, and higher costs.

Centralized purchasing lets a hospital or system:

• Use the buying power of all departments together
• Set standard contracts with main vendors
• Have consistent pricing and service agreements
• Use data analytics to check if contracts are followed and find unusual charges

Hospitals can use procurement software to track spending, manage contracts, and communicate with vendors. These tools make spending clearer and reduce unexpected costs, helping to keep vendor communication smooth.

Margaret Steele from Vizient suggests starting with easy, standard purchases to get quick results and build trust before adding more categories. This helps avoid big disruptions.

AI and Automated Workflow: Transforming Purchased Services Management

Automation and AI in Spend Management

Artificial Intelligence (AI) and automation are gaining use in managing purchased service data. AI can handle very large amounts of spending and invoice information faster than people can. It can find mistakes, unclear data, or patterns that show chances to save money.

For example, automated systems can check invoices against contracts right away. They flag wrong charges or duplicates before payment happens. AI can also predict future spending by looking at past patterns. This helps hospitals plan purchases better.

AI tools also help manage vendors by automatically sorting spending, comparing prices, and recommending options. Automated workflows make contract approvals and renewals faster and easier, lowering the work for staff.

Practical Applications of AI and Automation in Healthcare Organizations

Healthcare administrators and IT managers can use AI tools to:

• Make sure billing is accurate by checking invoices in real time to avoid overpaying or fraud
• Improve contracts by studying terms and usage data to guide better negotiations
• Save time by automating tasks like data entry, approvals, and reporting so staff can focus on bigger decisions
• Watch vendor performance by giving regular analytics on quality and compliance to act quickly
• Support decisions by using past spending and market trends to suggest cost-saving plans and vendors

For example, hospitals faced supply problems during COVID-19 used software like the Ovation Healthcare PPE Warehouse Program. This helped keep track of inventory and orders automatically, making sure they had needed supplies on time.

Impact of Analytics and AI on Healthcare Financial Performance

Using data analytics and AI automation for purchased services has helped healthcare groups improve their finances by:

• Saving hundreds of thousands to millions in avoided or recovered costs
• Lowering waste and better using clinical and non-clinical services
• Improving contract compliance to strengthen vendor relations

Brian Lawrence, CEO at Coffeyville Regional Medical Center, said their supply chain tools saved about nine percent on average. Evan Rayner, CEO at Bear Valley Community Healthcare District, said special analytics helped cut supply costs by 12.5% even with inflation and supply issues.

Strategic Recommendations for Medical Practice Administrators and IT Managers

Healthcare leaders who want to benefit from data analytics in purchased services should consider these steps:

• Use spend analysis tools that sort and examine invoices and contracts closely.
• Focus on high-cost areas like operating rooms, IT support, and physician preference items.
• Manage purchased services with centralized coordination across the whole organization.
• Use benchmarking data often to compare costs and contracts with industry standards to find savings.
• Include AI and automation to speed up data work, catch errors, and simplify workflows.
• Bring together teams from finance, supply chain, clinical staff, and IT to watch spending closely.
• Start with small projects and expand as you see results to build trust and success.

This approach helps healthcare organizations get the best value from purchased services, use resources well, and keep finances steady over time.

By improving how purchased services are managed using data analytics and automation in the United States healthcare system, hospitals and medical practices can save money and improve service quality. This lets providers spend more on patient care instead of extra costs, which helps the whole healthcare system.