February 13, 2024- In previous years, 40% to 45% of a hospital’s non-labor operating expense was estimated to be within the categories that encompass purchased services. That number is now as high as 50%, shares Andy Motz, AVP with Valify’s Custom Contracting and Advisory Services.
Factors contributing to the rise in the percentage include the inflationary market providers have dealt with over the last 12 to 18 months. During that time, inflation caused the price of core services to rise anywhere from 9% to 34%. Managing outsourced services has become increasingly costlier due to fuel surcharges, the rising cost of energy and shortages in the labor market.
Outsourced services are often difficult to manage because they span multiple departments across the entire health system. This means that the decision-making and ongoing management of the contracts is likely decentralized. Adding to that challenge is the complexity of the categories and a lack of consistent operational metrics.
For providers who manage multiple facilities of varying sizes in widespread locations, contracts with local suppliers for these services can hide a lot of wasted spend from potential redundancies and regional price variations.