Pricing: Make it straight, narrow and low

Without rationality or transparency in pricing, vendors and providers will continue to squabble about price instead of discussing the bigger issues facing them – total cost, efficiency and innovation. That’s why some providers are choosing to partner with vendors who offer straightforward, transparent and low prices.

Providers have no choice but to seek the low-cost vendor, said Joe Volpe, vice president, supply chain, Wheaton Franciscan Healthcare, Glendale, Wisc., speaking to national accounts executives at the Association of National Account Executives Annual Conference in Chicago. That’s because payers are choosing their provider partners, and high-cost providers aren’t among them. In short, vendors can affect providers’ ability to compete in the market.

“It’s a classic lose/lose scenario,” said Volpe. When vendors insist on overcharging for supplies and equipment, particularly physician-preference items, the provider suffers by paying unreasonable prices, and the vendor suffers, as the provider pursues alternative vendors. Wheaton Franciscan has done just that, said Volpe, citing one example of a physician-preference vendor whose market share in the IDN dropped from 70 percent in FY06 to 59 percent today, because of unreasonable pricing. “Had they worked with us in 2006, our conservative estimate is that they could have gained 10 percent market share.”

In another example, Wheaton Franciscan cut the market share of one implantables vendor in half, “and that will continue to go south,” because the company wouldn’t budge on pricing. “We just can’t keep banging heads with the vendor community,” he said. When vendors continue to charge high prices – unjustifiably, based on industry averages – they will never be able to engage in more fruitful discussions with providers, such as what new products they are developing.

“We have to come up with a rational pricing system,” he said. “Historically, we spend the bulk of our time on pricing. If we can get past that, we can spend our time reviewing the vendor’s products, services and equipment to grow their market as a preferred partner. What can we do to improve their efficiency and ours? It’s a paradigm that needs to change.”

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