This is part 2 of our blog on key facts that you should know about every hospital you sell to …both to earn the business and then to keep it in this highly competitive market.

If you missed Part 1 click here and the link will take you to the article. In part 1 of our blog we discussed the importance of understanding the leadership structure, board composition, hospital strategic initiatives, financial health and signature approval levels.

  1. Capital Budget Cycle: Every hospital budgets for capital projects yearly and has a three-year plan. Department directors typically begin the capital budget process 4-6 months before the end of their fiscal year and often don’t know whether the funds they have requested have been approved until the beginning of the new fiscal year. Just because a capital project has been approved doesn’t mean the funds will be released. The economic climate and other factors often come into play. It is not uncommon for a hospital to authorize a total dollar amount for capital purchases and then dole it out monthly based upon need.
  2. Decision Making Process: Every hospital has a decision making process for the purchase of equipment, products, and services. You must identify all of the key stakeholders (internal and external) and their role/influence for each purchase. Don’t assume that because you have successfully sold to them in the past that their decision making process is the same. In addition to the stakeholders, you need to understand what Committees exist within the Institution that also influence the decision making process. Although there are usually numerous committees at any given facility, for the sake of this article (and list) we want to focus on the three (3) noted below. Please bear in mind that definitions and functions may vary slightly depending on the Health System, or other entity you are dealing with:

a). Technology Assessment Committee: Usually this type of committee is tasked with examining the medical, economic, social and ethical implications of the incremental value, diffusion and use of a medical technology in their Healthcare System (…looking at any and all Technologies (and/or therapies, treatments, drugs, etc.) that could change the status quo and/or create new treatment options or therapies for the health system). These committees usually have C-Suite and Senior Level Clinicians, Risk Management, and Quality Improvement representatives on the committee.

b). Value Analysis Committee: Usually this type of committee is tasked with creating an organized approach to evaluating and selecting products and services in the context of cost effectiveness, patient safety and quality care. These committees are designed to bring Clinical and Supply Chain professionals together to fully utilize their combined expertise.

c). Capital Planning Committee: For our purposes, we are talking about medical capital equipment and the facility/infrastructure changes impacted with the planning and procurement of such items. Usually this type of committee is tasked with gathering a “wish list” of all the capital needs from the various departments and/or Clinicians. Since there is never enough funding to secure everything on the “wish list”, the committee is tasked with paring down the list to match available funds. These committees usually have C-Suite, Senior Level Clinicians, Facilities Engineering and Quality Improvement representatives on the committee.

  1. Fiscal year End: Most hospitals end their fiscal year either June 30 or December 31. If there are unused capital funds they are often spent in those months. The fiscal year end is also important because it determines their capital budget cycle.
  2. Type of Hospital: Is it a For-Profit (FP) or Not-For-Profit (NFP) hospital? For-Profit hospitals buy capital equipment based on generating internal funds from operations or by selling stock (equity capital). Capital projects are budgeted based on the generation of the internal funds and are often delayed if revenue is lower than expected and/or expenses are higher than anticipated. Not-For-Profit hospitals also buy capital equipment based on generating internal funds from operations but also receive funds from grants, philanthropy or through the bond market (by issuing debt)
  3. GPO & IDN/RPC Status: Group Purchasing Organizations can often exert immense influence over the vendor to be considered for the purchase of a product or service. This varies by type of GPO. In general the GPOs have had the greatest success in helping hospitals reduce their spend on commodity items, clinically sensitive items, pharmaceuticals, and some capital equipment and purchased services.

Hospitals are forming IDNS and RPCs (Regional Purchasing Coalitions) to get better savings than they currently receive from the GPOs. The GPO pricing is merely the starting point for the IDNs pricing discussion. Savvy sellers are aggressively negotiating directly with the largest IDNs and RPCs

A thorough understanding of the structure and function of each of your hospitals will increase your likelihood to match your products, services or solutions to their business and clinical requirements.

Image Credit: Google Images

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