Hospitals overspend an average of $39 billion each year on purchased services, according to recent estimates

Sustainable cost control has been a top priority for healthcare executives in recent years, according to the Advisory Board’s annual survey. But estimates from Medpricer, a purchased services cost management solution, indicate hospitals may be leaving money on the table when it comes to outsourced services—such as laundry or food preparation—and those longstanding agreements their executives may not have revisited in years.

  • Purchased services comprise of approximately 20 percent of hospitals’ operating costs, totaling $991 billion in 2017 alone
  • By analyzing the supply chain and revisiting vendor agreements, hospitals can save an average of 24 percent of their costs, which translates to $39 billion
  • Hospitals can assess costs and determine whether they need to draft a request for proposal (RFP) or simply renegotiate with existing suppliers

With the increased emphasis on cost reduction, many hospital executives are turning to mergers to gain scale in the market, greater negotiating power and better prices. However, research is mixed as to whether horizontal mergers necessarily lead to greater cost-savings, with one recent study finding acquired hospitals save an average of just 1.5 percent annually.

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.