August 17, 2020

5 Tips for Managing Your Purchased Services

With over 30%* of all operational expenses, purchased services can be a revealing spend category for healthcare systems. Why? Purchased services often act as a litmus test for how well an organization systematizes its operations, communicates across departments, and optimizes their resources. Ultimately over the next decade, the health systems that fine-tune their purchased services management process will thrive, while everyone else falls behind.Purchased Services Quick Facts: Purchased services include any and all services that are performed by a third-party vendor rather than done by the health system itself. Examples include landscaping services, credit card processing, and transcription. Health systems […]
January 14, 2019

Are You Managing Your Purchasing or Allowing Vendors to Manage It?

Hospital purchasing contracts exist to protect an organization’s funds by clearly defining suppliers’ terms. Not having a contract on a regularly purchased item can lead to higher pricing, as one of our hospital clients discovered after a vendor rep left.   The hospital had a verbal agreement with the manufacturer’s representative for textile products, which were purchased through a distributor. After the rep left the company the distributor began charging the hospital the manufacturer’s list prices because it had no vendor agreement for the rep’s discounted pricing. Since the hospital also lacked a contract in its system for the discounted […]
December 13, 2018

Excessive Freight Costs Can Be Missed on Capital Equipment

Medical equipment for hospitals and healthcare systems can range from a small needle to an enormous MRI machine. Shipping such heavy equipment incurs large freight costs for hospitals. Without foresight or proper monitoring, excessive freight costs can be mistakenly approved for payment. For example, during a recent Discovery Review, we identified that a health system paid $28,000 for freight on operating room equipment when the actual freight charge was $11,000. Causes for Incorrect Freight Charges In the case of the health system that we worked with recently, it all came down to the payment policy. This health system allowed freight […]
September 5, 2018

Why Strong Communication Between Accounts Payable and Receiving Matters

In our many years reviewing health system cash flow, we’ve found that returned goods are one of the largest areas of claims identified and recovered. Significant money may be lost during the return process, due to lack of proper communication between the Accounts Payable, Purchasing, and Receiving departments. Ideally, a health system’s returns policy would require all departments to return items through the Receiving (or Shipping) department, with persistent follow up by Accounts Payable or Purchasing. This back and forth communication is crucial to ensure no funds are lost. These communications should be properly documented, and departments should task one […]
December 4, 2017

Open-Ended Purchase Orders and Overpayments

In any Accounts Payable department, you may run into open-ended purchase orders. Especially in a major healthcare system, open-ended purchase orders are problematic because they prevent ERP systems from identifying overpayments or flagging duplicate invoices for review. Avoid these issues with open-ended purchase orders by putting effective purchasing controls in place and carefully processing each invoice by your system’s standard. Open-Ended Purchase Orders Cause Overpayment for a Health System During a recent audit, TAG worked with a large healthcare system to find overpayments and lost funds. We uncovered that the system had an open-ended purchase order with Johnson & Johnson, and […]
November 2, 2017

Avoid Overcharges by Entering Contracts Promptly

At a large health care system, there are many individual contracts and pricing agreements – both directly with vendors and through group purchasing organizations (GPOs). This can be complex, and it takes a team commitment to avoid overcharges by entering contracts quickly and accurately. Three Step Process for Favorable Pricing Making sure that a hospital or health system pays the correct price for every order and contract requires a standard procedure. The Audit Group recommends a three-step process each time a contract is entered: Determine the correct price and most favorable terms before an order is placed Create accurate purchase orders that reflect […]
September 7, 2017

Rebates Cause Tracking Challenges

At any large healthcare system, vendor rebates can be difficult to manage. Because they require a multi-step process to track dollars earned, credits issued, and monies paid, rebates cause tracking challenges for Accounts Payable departments. Rebates Versus Lower Contract Pricing Oftentimes, vendors use rebates as a key part of their pricing strategy and structure. This tactic makes their pricing more attractive to potential clients. When tracked through Accounts Payable and issued correctly, rebates can help healthcare organizations save some money. That being said, inconsistent tracking is the primary problem with vendor rebate programs. Some vendors pay rebates via check refunds, […]
Rebates Cause Tracking Challenges
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