This article was written by Lisa Miller.
How does your health system approach pricing and contract negotiations with your vendors?
In this blog, I outline three reasons for your hospital to negotiate with your vendors.
Financial pressures on hospitals remain strong.
The current healthcare environment is extremely challenging for all healthcare organizations. The American Hospital Association (AHA) predicts that up to half of all hospitals could be losing money by the end of 2020, compared to a third typically. To date, more than three dozen hospitals have entered into bankruptcy this year.
Negotiating with your vendors should be a central part of your margin improvement strategy.
Highly trained vendors
Hospitals are facing a double whammy of lower reimbursements and their vendors creating pricing strategies and complex agreements. With a focus on patient care, most hospital employees simply don’t have enough experience to negotiate with vendors.
At VIE Healthcare®, we are seeing an escalation in the number of highly trained vendors. Hospitals must learn to apply the same, or more advanced strategies and analytics during negotiations in order to minimize risk and drive margin improvement.
In the current climate, negotiating with vendors to obtain the best price for your hospital is not becoming any easier, but strategies can be taught and implemented across your teams.
Line item analysis is overlooked
Significant opportunities for cost savings already exist within the line item details of your invoices. I cannot emphasize enough how important it is for transparency over line item value to form a part of any vendor negotiations.
In many cases. we are seeing a subtle yet definite shift away from discussing line item costs in favor of a focus on overall contract value. In these situations, vendors are eager to promote a holistic view rather than discuss line item details.
I say again here and now that you absolutely have to analyze every single line item.
Hospitals need that line item analysis to identify areas to drive margin improvement and realize significant cost savings.Your hospital must analyze and discuss every single line item during vendor negotiations to identify areas of significant cost savings. Click To Tweet
We urge every hospital to understand each cost by line item value during negotiations with your vendors.
Changing list price
We recommend that vendor negotiations and benchmarking must be tackled in very different ways.
At VIE Healthcare®, when we’re digging into the line item details of hospital invoices, we make it a priority to track the vendor’s list price.
In the majority of cases, these are changed every single year. In these situations, any discount offered is irrelevant because the list price has been repeatedly changed.
Furthermore, we recommend the following:
- Avoid monthly minimums. One pricing strategy we exclude in contract renewals is that of monthly minimums. Given the current environment, it is likely that your organization is paying for services that haven’t been performed—or are tied to a volume guarantee structure that is impossible to achieve.
- You cannot allow prices to auto-renew. This must be an additional key point of negotiation for your hospital.
An additional point to note is that in term or out of term, you can negotiate those agreements at any time.
In our experience, we find that most employees may be willing to be part of the negotiating team but are reluctant to take a lead in or initiate those negotiations. At VIE Healthcare®, we offer negotiation training for all healthcare leaders, or alternatively, we can negotiate with your vendors on your behalf.
In one example, we helped a hospital achieve $1,000,000 in cost savings by constructing a negotiation strategy.
We recommend it as a key part of your overall margin improvement strategy. As I have previously highlighted, improving your results by 1, 2, or 3%, can have a significant impact on your bottom line.
In the current challenging environment, there is a greater need than ever to implement this critical strategy into your organization.
For more insight into this key topic, read our 5 Steps To Better Contract Management For Hospitals.
Schedule a call with Lisa Miller to strengthen your vendor negotiation skills and identify cost savings opportunities in your agreements.