There are six ways hospital vendors increase their margins.
1. They change their list price book every year.
Their 2021 list price book will look very different from their 2016 list price book for the same items.
Vendors increase their margins because the discount they give hospitals is off a list price.
2. Pricing committees.
When hospitals benchmark a price, the vendor response is to meet with their internal pricing committee before agreeing to it.
3. Tiered pricing structures.
Vendors have tiered and complex pricing structures.
Multiple tiers present major obstacles for healthcare organizations trying to reach the next pricing level.
To get the best pricing you have to move to the next level and incorporate additional spend.
These tiers make it difficult to attain effective cost management for hospitals.
Vendors utilize their GPOs to keep some prices high.
They have ceilings which they state are their GPO prices, so there is no flexibility.
5. Using rebates, versus giving invoice pricing.
Vendors use rebates rather than reduce costs to hospitals directly.
These rebates are based on volumes purchased by hospitals or how they utilize other vendor products.
6. Minor enhancements are made to products.
These are new, shinier versions of the same products, reintroduced with additions.
It’s essentially the same product but with a price increase of 25-30%.
Using a revision component in a primary case increases costs that hospitals don’t receive reimbursement for.
Hospitals can’t increase their prices.
Value analysis and physician engagement are key in these situations.
In some cases, costs are also being charged where services haven’t been performed.
At VIE Healthcare,® we work with hospitals to implement best practices in contract management.
This includes carrying out a detailed review of vendor invoices, including a line item analysis to identify cost reduction opportunities.
Reach out at [email protected] to discuss your cost savings goals and how we can support and accelerate cost savings opportunities in your organization.