Every day, week and month you must decide whether to reject or accept your suppliers and GPOs price increases. It is a ritual that all supply chain professional’s face from the first day on the job. Yet, do you realize that if you accept a price increase you have just increased your hospital, system or IND’s cost of doing business? Considering the dire consequence of this decision, the urge to approve price increases out of hand must be vigorously and combatively resisted at all cost!
To assist you with this challenge, here is a three-step process to both resist supplier and GPO price increases and identify and implement cost-improvement initiatives in today’s volatile healthcare marketplace:
1. REJECT all price increases until they can be fully investigated.
All suppliers and GPOs expect you to say “yes” to their price increases, but your first answer should be to reject all price increase until you can fully investigate and justification the increase. This process starts with you asking, in writing from your supplier or GPO, the economic reason (e.g. cotton has increased by 7% over the last year) for the price increase. This will give you the opportunity to study whether the facts of the situation are true. Even if your supplier’s claim is factual, move on to step two.
2. REFER all price increases to your value analysis teams for vetting
The definition of value analysis is the study of function and the search for lower cost alternatives. So you need to have your VA team perform a VA study on the commodity on which the price is to be increased. For instance, one of our clients, instead of signing off on a price increase on a wound care group purchase contract, decided to pursue a value-based approach by reviewing their organization’s wound care program. In doing so, they reduced their ulcer rate by 10 percent while reducing their wound care supply spend by $262,000, thus negating the price increase that was impending. This is one of the best ways I know of to stem the tide of any and all price increases that are requested by your suppliers or GPOs.
3. REVISE agreement to give you something in return for price increase
If all else fails in step one and two to reduce or reject your price increases, then I would suggest that you have your suppliers or GPO give you something of equal value in return for accepting their price increase. As an example, if we were talking about IV sets, I would then negotiate to have the supplier’s IV specialist perform an audit on your IV set utilization. From our experience, nine out of ten times this specialist will uncover savings equal to or greater than your IV set price increase, thus cancelling-out the price increase that was accepted by you.
As suggested by this three-step process, your objective should be to prevent, negate or eliminate the effects of all price increases. This doesn’t mean you can’t accept a price increase from a supplier or GPO, but you most absolutely get something of equal value in return for your concession or it could have a major impact on your healthcare organization’s bottom line.
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare