March 2021

Hospital Nets $3.8 Million in Annual Savings Through Purchased Service RFPs

North America - United States

Engagement Summary

Innovative Health Strategies™ (IHS) and Faegre Drinker achieved $3.8 million in annual savings for a 300-bed, nonprofit hospital in the Northeast by combining the sourcing experience of IHS consultants with the health care transactional experience of Faegre Drinker attorneys. IHS managed request for proposals for clinical engineering, food and nutrition services, and environmental services, and Faegre Drinker attorneys negotiated final, execution-ready contracts for each service line.

The Process

  1. Met with hospital leadership at the outset to understand near-term and long-term goals and unique requirements; met with key stakeholders to ascertain attributes of a desired future state for each service line
  2. Collected and reviewed the hospital’s financial and operations data to establish baseline spend, current state scope of services and service levels
  3. Developed a custom request for proposal for each service line; engaged qualified vendors to bid on one or more services
  4. Encouraged expressive bidding, a bid describing conditions to achieve a desired result (e.g., financial models guaranteeing savings hit the hospital’s bottom line; performance plans that improve quality metrics, otherwise vendor may be penalized up to the amount of its annual management fee)
  5. Facilitated bid comparison reviews, presentations and Q&A that led to vendor-of-choice selections
  6. Led the hard negotiations shaping the best offers and delivering exactly what the hospital wanted

We issued RFPs on behalf of the hospital in January 2020, completed the clinical engineering contract in August 2020, and completed food and nutrition and environmental services contracts in October 2020.

The Impact

Our engagement generated $3.8 million in annual savings for the hospital, which breaks down as follows:

  • Clinical Engineering: $1,925,276 annual savings (26% savings from baseline spend)
    • Five-year contract with a new vendor
    • Fixed-fee charge from vendor covers labor, service, parts and repairs for all biomed, imaging and lab equipment
    • 24/7 full-service coverage on all equipment (eliminating overtime)
  • Food & Nutrition Services: $1,297,765 annual savings (13% savings from baseline spend)
    • Five-year contract with legacy vendor with up to five one-year renewals
    • Guaranteed budget (vendor reimburses for overages)
    • Management fees at-risk for improving quality metrics
    • $1.5 million capital commitment from vendor
    • $500,000 return of initial working capital deposit
  • Environmental Services: $558,444 (6% savings from baseline spend)
    • Five-year contract with legacy vendor
    • Productive labor guarantee (vendor reimburses for productive labor overages)
    • Management fees at-risk for improving quality metrics

Brett Warner of Innovative Health Strategies contributed to this engagement.

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