Third-party purchased services heavily influenced by rising cost of labor

Multiple categories experiencing cost increases hit hard in past 12 months

December 2021 – The Journal of Healthcare Contracting

Conductiv CEO Chris Gormley recently spoke with The Journal of Healthcare Contracting (JHC) about third-party purchased services expenses, the use of labor in the healthcare marketplace during and after the pandemic, and key strategies for providers to tap into for purchased services. Conductiv is a consolidated subsidiary of Premier Inc. and was founded in 2004 to help organizations negotiate contracts for regionally sourced services. 

JHC: What are hospitals and health systems conveying about expenses such as third-party purchased services? Are those expenses on the rise? If so, how is that affecting providers?

Gormley: When comparing third-party purchased services to products, the total cost of the service is heavily influenced by the cost of labor. Due to this, the services market has been hit particularly hard during the past 12 months. 

Right now, it’s a very competitive market for all labor types. Workers across the country have left their jobs in waves as they reevaluate new options that didn’t exist in a pre-pandemic environment. Hospitals are feeling this everywhere from small services like pest control to larger spend areas, such as construction and nurse staffing.  

The U.S. Bureau of Labor Statistics recently released its quarterly Employment Compensation Index report, which measures how salaries, wages and benefits are changing over time – and total compensation spiked 1.3% spike in the third quarter of 2021 alone. Year-over-year, compensation rose 3.7%, the fastest annual growth rate since 2004. This means that suppliers are having to factor in higher wages to help attract and retain talent on top of higher prices for their business, such as fuel costs.

Based on these factors, some categories experiencing cost increases, include: 

  • Staffing 
  • Blood Products 
  • Courier Services 
  • Waste Management 
  • New Construction 

These categories have been heavily affected by a rise in fuel costs, the labor market and supply chain issues.

One mitigating factor is contracts that prevent or limit price increases over time – and for those systems heading into an upcoming contract renegotiation/bid effort, it’s important to exercise great care. 

With deep subject matter expertise, a broad view across categories, and innovative technology that gives providers powerful insights to analyze, benchmark and source competitive contracts, both Premier and Conductiv are helping our members navigate through this complex environment. A central technology platform capable of managing and tracking end-to-end supply chain costs, performance and contract details can allow providers a leg up in the contracting processes, stakeholder and supplier relationships, and can support the financial health of the organization overall.

JHC: How are hospital and health systems rethinking staffing both short-term and long-term? How are Premier and Conductiv working with them to get ahead of the workforce strain?

Gormley: Across every industry, the pandemic has had a dramatic impact on the world’s workforce – and perhaps none more than healthcare. PINC AI data spotlights these challenges:

  • Overtime hours are up 52% as of September when compared to a pre-pandemic baseline. 
  • Use of agency and temporary labor is up 132% for full-time and 131% for part-time workers. 
  • Clinical staff turnover is reaching record highs in key departments like Emergency, ICU and Nursing, with the annual rate of turnover across these departments increasing from 18% to 30% since the start of the pandemic. 

Hospitals and health systems across the country are paying $24 billion more per year for qualified clinical labor than they did pre-pandemic. In this environment, hospitals and health systems are testing creative solutions to address workforce challenges, including broader recruiting efforts, new performance incentive structures, flexible work options and remote work for non-clinical positions, and the use of data to pinpoint opportunities for operational efficiencies. 

For our part, both Premier and Conductiv are committed to helping providers get ahead of the workforce strain curve through: 

Benchmarking for optimal staff performance. PINC AI can provide health systems with productivity benchmarks to pinpoint areas or departments where leaders may need to adjust staffing levels based on skill mix, staff configuration and shift configuration to manage patient care demands.

Work redesign. Our advisors are available to work with health system leaders experiencing current and future challenges to assess opportunities and implement smart solutions that work.

Manage agency costs. Premier has national contracts complemented by Conductiv’s regional, local and custom third-party services contracts to help control the costs of FTE and/or contingent staff for both clinical and non-clinical assignments. With vast healthcare staffing industry insights and end-to-end talent solutions, our strategic suppliers guarantee ROI – evidenced by the fact that Premier has been able to achieve discounts of 10% or more on talent solutions throughout the pandemic.

JHC: Walk us through three key strategies for providers to tap into purchased services.

Gormley: Accelerate speed to insight with data. Although no one-size-fits-all strategy exists, it all starts with the data. Powered by artificial intelligence (AI) and machine learning, a comprehensive purchased services platform equips providers with a real-time view into usage and spend – and can be indexed by supplier, category, service-level terms or contract renewal date. This technology can also set and manage specific savings targets and oversee contract compliance once new agreements take effect.

Analyze contract performance and engage suppliers. A technology-enabled means to monitor spend and utilization gives hospitals immediate visibility to ensure the services they receive match the contracted terms, which includes the quality of services and price. Providers leveraging Conductiv’s optimization technology can also easily identify and engage diverse and local suppliers. Supporting these suppliers builds a stronger workforce, can generate savings and opens opportunities for community-based collaboration on future contracts.

Leverage the power of GPO contracts. With hospitals and supply chain teams asked to do more with less, leveraging aggregate purchasing power can lead to significant cost savings and contract risk reduction. Alongside the power of Premier’s national GPO contracts, Conductiv’s third-party optimization solution combines a powerful technology platform, GPO specifically for service contracts, and strategic sourcing services to improve third-party spend and supplier relationships.

Even amid a pandemic, hospitals and health systems partnering with Conductiv have saved as much as 31% (weighted average) across categories through a combination of GPO/local contracts. 

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