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Purchased Services Program Offers Savings for Healthcare Supply Chains

Posted by on 12.02.16


In October I had the pleasure of presenting at the Strategic Marketplace Initiative (SMI) Fall Forum just outside of Denver. SMI is a think tank comprised of both healthcare systems (providers) and those who sell goods and services to those organizations (suppliers). Here is how SMI describes itself on its website:

The Strategic Marketplace Initiative (SMI) is a member-driven consortium of industry thought-leaders united to shape the future of the healthcare supply chain to improve the healthcare marketplace in the United States.  

The SMI membership is a “Who’s Who” in both the healthcare provider side as well as the supplier side. Networks such as Mayo, Geisinger, The Ohio State University, Providence, Yale New Haven, Texas Health Resources, Barnes Jewish, Duke, Wake Forest and others send their senior Supply Chain Leaders to participate, as do suppliers such as Abbott, Owens & Minor, Cardinal, Hill-Rom, GE Healthcare, Boston Scientific, and more—all key and participative players in an organization whose goal is to make healthcare better in every aspect.

I was at the meeting to give a presentation on Purchased Services based on a series of articles I had written for Healthcare Purchasing News. Purchased Services, in its broadest sense is anything that is purchased from and performed by someone other than hospital staff. In most Integrated Delivery Networks (IDNs) and stand-alone hospitals, such services can comprise as much as 25% of the total spend in the operating budget, meaning that an organization with a $1 billion operating budget may be spending as much as $250 million on Purchased Services—services such as:

  • Blood Services
  • Credit card processing
  • Resource management
  • Accounting services
  • Audit Services
  • Revenue Cycle Management
  • Facility cleaning
  • Waste management
  • Laundry and linen management
  • Food services
  • Patient transport and courier
  • Supply distribution
  • Facility management and maintenance
  • Biomedical services
  • IT services
  • Legal services
  • Consulting

Historically, responsibility for the management of the contracts related to the services mentioned above has often resided in the hands of the directors who manage the departments or disciplines in which the services are provided. Consequently, the same rigor and skillset used by the folks responsible for contracting for purchase of items and capital equipment is often lacking and opportunities to drive the best deals and control costs are often missed—to the tune of as much as 15-40%. In the case of the organization mentioned with the $250 million in Purchased Services expense, the potential savings could range from $30-$100 million.

In recent years, several companies have developed a set of tools to help organizations implement successful programs to mine such opportunities. My talk was about a simple roadmap I had developed to set up and initiate such a program—one that focused on People, Process and Technology.

The most interesting aspect of the SMI group is the collegiate interaction among the attendees. The group is a “Think Tank” in the truest sense, but one filled with a great deal of down to earth fellowship. It provides a real service to the industry and it was an honor to present there.


Fred Crans is a strategic business leader and developer in Sedlak's healthcare practice with extensive experience in the national medical and healthcare industries as an executive and consultant. He has expertise in operational improvement, materials management, distribution, and strategic leadership. Sedlak's healthcare solutions help optimize supply chain operations, balance cost/service trade-offs, and pursue intelligent growth strategies.

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