Contract Utilization

Challenge

A major healthcare organization was incurring extremely high monthly expenses from off-contract vendors.

The healthcare organization had no visibility as to who these off-contract vendors were. Corporate had established contracts with a set group of vendors to provide all of their facilities with their medical equipment needs, at agreed upon prices, in order to drive compliance across all locations and keep costs down. However, all vendor bills were approved solely by the local managers, then sent to corporate for payment. Corporate Accounts Payable assumed any bill approved by a local manager was ok to pay. Corporate had no visibility into whether the submitted bill was for equipment supplied by one of their contracted vendors or by an off-contract vendor. There was no system of checks and balances in place, to make sure that only contract vendors were being used.

Resolution

SentinelC3 established a definition of “off-contract” so they could identify anyone doing business with the local hospital who was not one of their contracted vendors, then created a report that showed ‘this is a contracted vendor’ and ‘this is not a contracted vendor’. A process was set up where Corporate A/P could no longer pay the rental bills; instead, they were funneled through the SentinelC3 system. This process forced the off-contract vendors to have to go through SC3 for payment, which then gave the healthcare organization 100% visibility into who was doing business off-contract, what items they were supplying, tracked down to the local level.

Result

Cost savings the first year were dramatic, with monthly payments to off-contract vendors dropping by 72% a month. This resulted in a cost savings of several million dollars over three years. By giving visibility directly to the VP and Materials Manager levels, corporate now had a means to start reducing the off-contract vendors and redirect the local facilities to using contracted products.

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Overall, the organization reduced off-contract use by 80%, with a cost reduction of one million dollars. Presently, off-contract utilization is less than 3% for highly specialized items not available on contract.