A large percentage of the contracts that your hospital, system, or IDN is signing today, or will be in the future with third-party payers, is moving towards capitated, fixed price, or value-based reimbursement. This means that having excellent pricing and near universal standardization of your products, services, and technologies is just the cost of entry into this new value-based contract world. More importantly, clinical supply utilization management is even more important than ever before.
You Must Fix Your Contract’s In-Use Cost to Survive
As I have said many times, price is the smallest cost element in your product, service, or technology’s lifecycle. Therefore, you must focus your contract’s bid/negotiation (including your group purchasing contracts) on optimizing your in-use cost of the products, services, or technologies under contract. This is because you could have the best price on a commodity, but your in-use cost is sky-high and this fact will eventually lead to a third-party contract loss, not a profit.
Only by Benchmarking Can You Determine Your Optimized In-Use Cost Target
I would like to tell you that all you need to do is ask your vendors to guarantee your in-use costs over the term of your contracts, but this doesn’t ensure you the best outcome. Only by understanding where you are in the marketplace on any commodity under review can you bid/negotiate a better deal than a prior agreement. For example, if you knew that your endomechanicals’ current cost per procedure (NOT PRICE) is twice as high as your peers, wouldn’t you negotiate a cost per procedure during your contract term to match or exceed this benchmark?
Make Your Suppliers True Partners in Your Cost Management Efforts
In the new value-based contract world you must ask your suppliers to bid on a fixed in-use cost on their products, services, or technologies, since it doesn’t matter what their price is. They then must provide monthly/quarterly/annual reports to prove they are meeting their guarantee. If they miss the target for any given quarter, they must reimburse your healthcare organization for any negative variation. Likewise, you might also want to incentivize your suppliers for exceeding your expectations. This reciprocity would make your suppliers true partners in your cost management efforts, not just passive observers.