Developing Specifications Can Pay Off

By John Strong

Buyers – not sellers – should prepare the specifications for the goods and services they buy

Writing good specifications takes time, and it’s hard work. Nonetheless, most industries recognize it as an essential role of supply chain management. But in healthcare, we either use simple specifications, such as citing a brand name, or none at all. We seem to “take” the products designed and developed by our suppliers, rather than telling them what we need.

With the industry heading toward full implementation of the Affordable Care Act, most healthcare providers are looking at everything in a quest to find more cost savings. Many are building highly effective value analysis programs, especially to look at high-cost, historically “clinician preference” items. Value analysis strives to compare products, services and processes and identify unneeded features of them. Unfortunately, when the projects are done, we often fail to take what we’ve learned and build them into specifications for future use.

As an industry, we’ve typically been driven by new technology and sometimes what amounts to product line extensions. Memorializing what’s actually needed vs. what is “nice to have” is where specifications come in. Good specifications lead to improved standardization of not only products, but processes as well. Specifications should be an outcome of value analysis and work hand-in-hand with it.

procurement_speci_matrix

Healthcare compared to other industries
In many healthcare transactions, the manufacturer and its sales representatives have been allowed to become key influencers of purchasing decisions. That is not the case in other industries. (See table.) Usually it is the consumer of the goods who specifies what they want.
Without specifications, we fail to capitalize on the evaluation process, whether it is examining new products, or soliciting proposals for either goods and services. We lose the ability to:

  • Drive future requirements and purchases.
  • Perform thorough price analysis.
  • Negotiate based on what is actually required to perform the task.
  • Match products and services with the need, ensuring that we are not accepting unneeded features and benefits.

Make no mistake. Being overly prescriptive can stifle innovation and cost organizations money. On the other hand, developing specifications allows us to clearly indicate to suppliers what is needed – and why they either received a contract award or didn’t.

Specifications for products
Good product specifications start with defining requirements. The procurement staff needs to have good communication with product users for technical advice. In many organizations, these are the exact people who are also assembled to perform value analysis.
Defining requirements comes from finding common understanding about what is needed. By asking questions and exploring possibilities, you can eliminate ambiguities about what is actually needed, often leading to reduced product or service features, and lower cost. This can lead to better product and process performance, providing better patient outcomes.

Specifications for services
Many specifications today seem to focus on the “boilerplate” terms and conditions that the buyer is looking for, and less on what services he or she actually desires. In some cases, vendors provide the specifications. This can lead to over- or under-specification. The seller may have no incentive to restrict services to those that are actually needed. More service may be nice to have, but it is probably costing your organization money. If you’ve placed too much emphasis on cost with a service provider, you may get a low price but find out that you are also receiving bare-bones service as a result.

When writing service specifications, you need to be clear, concise and complete. To do so, the procurement staff needs to work with a team of people who use the service to help carefully define all the steps that are needed for effective service delivery. Doing so also allows the buyer to match the specifications to the end results provided by the selected supplier – an essential part of monitoring the results through the contract-to-pay cycle.

It pays to take the time to completely define the organization’s needs in a consistent fashion from the beginning to end of the specification. It’s also important to define which party is responsible for providing and paying for any products that are required to perform the services. Taking the time to do this will result in less misunderstanding from potential vendors, fewer questions, and a process that can be completed on time and with less frustration.

Characteristics of well-written specifications
Good specifications spell out the obligations of both parties clearly. They describe the buyer’s requirements in detail, and have great clarity without being wordy. This can be facilitated by using the active tense, and by being precise.

In addition, good specifications are data- and quality-driven, and they are objective. Unless you wish to “lock-out” certain suppliers, ensure that your specifications are written to be generally inclusive of all qualified suppliers. Every specification should be carefully proofread and reviewed with potential product or service users before they are published. This means making them team-driven, which can improve the potential for competition.

A good set of specifications
Whether for products or services, having well-written specifications can provide a number of benefits to the provider’s supply chain:

  • The potential for better competition for products.
  • Meaningful dialog around how products and services are actually used, how they are paid for, and how the processes involved with them can be simplified.
  • Clarification of whether each product or service meets the exact requirements of the clinician for the patient.
  • The opportunity to mesh good specifications with clinical procedures and care plans.
  • The opportunity to objectively evaluate new products, or product line extensions to see if the value provided is consistent with what is actually needed.
  • Reduce the cost of products and services through better matching of needs to requirements.

Conclusion
In healthcare, providers have tended to allow the sellers of the goods and services to set the specifications for products and services. While that has worked for a long time, and led to a great deal of important innovation, it may also have led healthcare providers to purchase too much, or the wrong things. That tendency has been reinforced by the fact that we didn’t always know what thought we needed – or we saw something with great features and benefits that became the new product we had to have.

As cost challenges continue to mount in healthcare, it is more important than ever that we define our requirements through well-written specifications. Doing so can provide us with a wide variety of benefits – most notably lower costs.

Back Notes

  • Association of Healthcare Value Analysis Professionals.
  • Barlow, Rick, Healthcare Purchasing News, “Redefining value analysis practices for a healthcare reform-minded Industry,” October 2009
  • Burt, David, et.al, Supply Management, Eighth Edition, McGraw-Hill, Irwin, 2010.
  • Cerrato, Paul, “Health IT’s Next Big Challenge: Comparative Effectiveness Research,” at www.informationweek.com, August 21, 2012.
  • Chen, MD, Pauline W., “Why Studies that Compare Treatments Lack Impact”, at http://well,blogs.nytimes.com, November 8, 2012.
  •  Effectivehealthcare.ahrq.gov, 2013.
  • fhwa.dot.gov, 2013.
  • Luna, Teresa, State of Idaho, Guidelines for Writing Effective Specifications, August 2010.
  • Murray, J. Gordon, Effective Specification Writing.
  • Tran, Eushiuan, Requirements and Specifications, Carnegie Mellon University, 1999.

John Strong is a former healthcare provider supply chain leader and group purchasing executive who operates his own consulting practice. In addition, he is an adjunct instructor of purchasing and supply chain management at the Sheldon B. Lubar School of Business at the University of Wisconsin – Milwaukee. He can be reached at johnstrongllc@gmail.com.

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