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Typically, we have documented savings in the range of $275,250 to $3,610,331 for our clients on price alone. This is because our clients weren’t applying these four new rules consistently and faithfully with all of their purchases. How could this be happening now, since most hospitals belong to one, two or more group purchasing organizations (GPOs)?

The answer is: Trust your GPO to have the best pricing on most commodities, but verify that your healthcare organization’s uniqueness, exclusivity and competitive choices wouldn’t warrant you even better pricing for your healthcare organization.

To assist you, here are the four new rules I talked about to help you to trust,
yet verify that you are getting the best pricing possible for your hospital, system or IDN:

Rule No. 1: Best price is a function of volume, not negotiations.
I’ve met some top negotiators in my 27-year consulting career. These were people who thought they had squeezed the towel dry on their commodity purchases, only to find through bids, surveys or audits that they weren’t getting the best pricing after all. They didn’t understand the universal rule that "best price is a function of volume, not negotiations."

You could be the greatest negotiator in healthcare, but if you don’t have the volume to warrant best pricing (in any category of purchase) your suppliers can’t legally or responsibly give it to you. However, you can build volume by combining similar or dissimilar product lines (e.g., forms and stationary, linens and gowns, reagents, food and environmental chemicals, etc.) into a bundle of products (or even services) that you can now bid as a package to move you to the next pricing tier for these products.

Rule No. 2: Customized contracts work best.
We are seeing that hospitals, systems and IDNs that are receiving the best pricing nationally are achieving these prices by entering into customized contracts. These healthcare organizations aren’t waiting for the next GPO contract to be released. Instead, they are proactively working with their GPO, or self-contracting their committed volume (see Rule #1) to one supplier or manufacturer over a three-to-five-year term. The operative word here is "committed" (not "possibly," "maybe," or "perhaps," but "guaranteed") volume. This is the carrot that is driving down the prices of commodities at progressive healthcare organizations nationwide.

Rule No. 3: Employ the newest technologies.
One new powerful technology that I see my clients using to reduce their prices to the lowest levels is reverse auctions. These are fixed-duration bidding events hosted by a single buyer, in which multiple suppliers compete for business online – in real time. For example, one of our IDN clients has documented a 26 percent savings on their hand soaps when they employed this new technology of reverse auction, as opposed to the traditional paper bids they had sent out to their suppliers for years. Huge savings were achieved because in the heat of battle suppliers see each others’ bids as the reverse auction is being conducted in real time. Being very competitive by nature, each supplier tries to outbid each other until the auction time expires.

You might think of a reverse auction as a free-for-all if it weren’t for the strict rules and discipline that are incorporated into the system for reverse actions. However, your healthcare organization always comes out the winner in these reverse auction "donnybrooks."

Rule No. 4: Have your prices audited annually.
We would all like to think that we are obtaining the best pricing available in the marketplace for the commodities we are purchasing, but how can we prove it to ourselves and our executive management team? Well, nothing can replace an audit as evidence that you are receiving the best pricing based on your volumes, uniqueness and your competitive environment. Even though it’s the logical next step for hospitals that have their financials audited every year, they fail to realize the value of auditing their pricing of the 16,000 to 21,000 in products, services and technologies that they purchase annually. These audits can be performed by your GPO or an independent third party. It’s not important who does it. What’s important is that you do it annually to verify that you are obtaining the best pricing possible for your healthcare organization. To do less than this will cost your healthcare organization thousands of dollars a year in lost savings.

Even though price is "only the tip of the iceberg" these four new rules related to price will enable your hospital, system or IDN to "wring the towel dry" in price savings if they become new tools in your toolbox of tactics and techniques to rein in your purchasing cost every year.