Let’s assume you are a hospital CEO in the USA and your facility has a 3% net margin. This means that for every $100M of revenue you earn $3M.
Would you rather try to grow revenue or ask your strategic sourcing department to reduce expenditures by $3M? The answer is obvious and that’s why aggressive cost reductions are being done every day in every hospital and why it will continue. Every dollar that hospital procurement saves drops straight to the bottom line.
Before you interact or negotiate with hospital procurement we suggest that you keep the following points in mind:
- Committee Influence: Hospitals are using value analysis committees and other technology evaluation committees to help them navigate the complex decision making process and subsequent negotiation with vendors. This also allows them to identify more than one vendor and to control deadlines and timelines. This puts them in charge of the buying process.
- Physician Influence is Waning: As physicians sell their practice to hospitals and become employees they lose their absolute power over what products to buy. Physicians still have influence but not absolute power. This allows the hospital C-Suite to break down the individual silos of interest to one of joint interest.
- The Art of Negotiation– Hospital procurement buyers and managers are becoming more skilled in the art of negotiation. Not only are they taking formal classes but since they negotiate daily they are constantly honing their skills. They are often more skilled at negotiation than the sales professionals that sell to them.
- Benchmarking & Big Data– Increasingly hospital procurement is using third party technology assessment firms and GPOs to provide benchmarking data. This allows them to benchmark their pricing and savings relative to their peers and the national average. It also provides them with concrete data to help them negotiate better contracts. They usually have better data than the manufacturer they are negotiating with.
- Refusal to Sign Confidentiality Agreements– Hospitals know that if they sign a confidentiality agreement and agree to keep their prices confidential they will never know if their price is above average, average or below average. Their hands will be tied. Many hospitals are now refusing to sign these confidentiality agreements.
- Alternative Vendors-Hospital procurement does not want to be fenced in with only one vendor if they can prevent it. They may prefer one vendor but they also want to have a back-up or secondary vendor in place. This gives them leverage.
- Education– Increasingly hospital procurement is “strongly suggesting” to the end users and clinicians that they be provided with each departments equipment and technology requirements and not the names of manufacturers and model numbers. Again this is to allow procurement to contact multiple vendors and have them compete for the business.
- They Understand Your Sales Strategy– Hospital procurement is getting more sophisticated and knowledgeable daily. They know you need to identify the stakeholders, establish trust and relationships, develop a champion and create brand preference. Their job is to prevent that by limiting access, restricting information, implementing strict rules and regulations for engagement, using committees to evaluate products and RFPs. Expect this activity to increase and not decrease. Hospital consolidation and continued pricing pressures will demand it.
- They Research your Company– They get insight about your company from multiple sources but particularly from MD Buyline and the GPOs. You should assume that that if you are a publically traded company they have read your financials and know your gross margin. Expect that they will squeeze you for better pricing. Your profits are always much larger than theirs.
- Negotiate Strategy– Hospital procurements always has a predefined negotiation strategy. They know what they want, what they are willing to give up and exactly where their walk away point is in every negotiation.
Facts to Consider
Hospital procurement executives are simply doing their job when they restrict access and negotiate tough with their vendors. It is your job to understand their buyer persona and bring them value. Before you negotiate with them develop a negotiation plan. Be prepared and above all highly skilled. In today’s healthcare climate there is no place for rookies in negotiation.