I get calls almost every day from people who work on the supplier side asking my opinion on where to focus for contracting success. The most progressive IDN supply chain leaders seem to be steering the big GPOs with their participation in GPO committees. At the same time, these big IDNs are knee deep in regional aggregation – often with the contracting engine provided by the GPOs they own. To add even more complexity, that same IDN may have its own GPO and self-distribute.
So when suppliers ask “Where do I concentrate my focus, staff and sales activities to drive market share?” I tell them to bet on the IDNs!
If you would have told me 10 or even five years ago that IDNs would have such deliberate control over their spend like they do today, I would never have imagined it could be this complex. It is counter-intuitive to think that as they have aggregated their volume, driven standardization and integrated clinicians into the supply chain that the costs and complexity for suppliers has actually increased. Providers and suppliers generally agree that the stakes are higher than ever, and the deals are bigger than ever, so you would think the cost for suppliers to attain these deals would take less salespeople, lawyers and administration. But it is actually just the opposite.
Years ago, I heard an IDN industry stalwart proclaim, “We want to be your low-cost customer. In fact we want to reduce your price by whatever SG&A is loaded into it, as we will not need any post-contract service.” This seems like a great idea, and the numbers may work well in an academic exercise, but what has happened in our market place seems to be the opposite.
When a supplier gears up to handle a progressive IDN, it is crucial they have;
- Comprehensive GPO contract coverage the IDN may use
- Be able to direct contract with the IDN
- Contracts or local tiers in place to service the IDN should it want to use regional aggregation
- Be prepared to service a self-distributing IDN
Perhaps the cost to serve plummets following the sale, but recent trends seem to point to higher stakes, and a higher cost to contract.
Thanks for reading this issue of The Journal of Healthcare Contracting.
John Pritchard