1. Hospitals will research overall market pricing rather than pricing tailored to their specific facility. Historically, negotiations on pricing were done in “absolute darkness” for hospitals, meaning there was little market data available to tell a hospital contract manager whether he was asking the right price for a certain supply. “The best you could hope for was a third-party tool that gave you an average price and an aggressive price,” says Mr. Ramas. “Those tools were somewhat useful, but it still left the contract managers with very little to lean on when it came to understanding how confident they could be in their negotiating.” The data hospitals could previously acquire would tell them the average price for a certain supply for a hospital of their size and location — helpful, certainly, but not as helpful as a comprehensive look at the entire supply market. Now, as companies begin to collect data from thousands of hospitals, hospitals and health systems will be able to see a price curve for each supplier that shows supply pricing for all the different hospitals they work with.
“Instead of a third-party tool telling them an average price to work from, they can see the entire curve and say, ‘Well, I’m a small hospital. I can’t expect to be in the tenth percentile, but maybe I could be in the fiftieth percentile,” Mr. Ramas says. “If you’re a huge super tanker and you expect to be in the tenth percentile, you can look at the curve and know exactly which prices [you should negotiate for].”
Price curves may also give insight into how suppliers negotiate with other hospitals, a perspective that wasn’t available in previous years. “When you look at a price curve, if a supplier has a very high discipline when it comes to pricing and doesn’t make exceptions, you see a staircase-type curve that shows hospitals are on one of several prices depending on the type of hospital,” Mr. Ramas says. “On the other hand, if the supplier doesn’t have that discipline and is making exceptions, you see a wobbly curve. You know from that which suppliers will make exceptions and which won’t.”
2. Hospitals will look at pricing data and re-negotiate contracts on a regular basis. Three to five years ago, a hospital that wanted to save money by renegotiating prices on stints, for example, would have to extract spending information, try to figure out the pricing in the marketplace via a third-party tool and assess the data to see how their prices compared. Because the process was relatively time-consuming, data for each supply would only be analyzed once a year. “[Hospitals and health systems] didn’t have the resources to constantly analyze pricing for every category,” says Mr. Ramas. “Now, we’re moving towards saying no; a contract manager should be spending that valuable time negotiating, not doing the grunt work and the elbow grease of analyzing that data.” With the data systems available now, hospitals can look at every category of items they’re buying and compare them to market prices to point out exactly where their prices don’t line up. “We can be consistently looking at that information,” Mr. Ramas says.
3. Misconceptions about the relationship between volume and pricing will be dismantled. When hospitals don’t have easy access to large quantities of market pricing data, relationships between pricing and other factors can be easily misconstrued. Historically, Mr. Ramas says, hospitals have assumed that the more supplies you buy, the less you pay. “If you talked to any manager out there five years ago, they’d say the super-integrated delivery networks are always going to get better prices than the small hospitals,” he says. “When you look at the data, that’s not always true. There are many different factors that play a part in pricing.”
4. Non-disclosure agreements may become a thing of the past. During pricing negotiations, a supplier can include a non-disclosure clause in their contract that tells the hospital, “I’ll give you a great price, but you can’t share it.” Mr. Ramas says that tactic may not work when hospitals have more market data readily available. “Would you go into a car dealership and buy a car if the salesman says you can’t tell anyone how much you paid for it?” he says. “Of course you wouldn’t. Why would we let that happen in healthcare?” He says that lately, more hospitals have pushed back against suppliers and refused to sign confidentiality clauses, understanding that paying for a “great price” with silence now might hurt them down the road when they discover the true pricing curve.
When hospitals can view pricing across the board — the same way you can view the price of an item at various online retailers to get the best deal — negotiations will no longer take place in “absolute darkness,” Mr. Ramas says.
5. Hospitals will be able to mesh pricing data with other data sets. As analytics products become more advanced, hospitals will be able to combine data on pricing with other data to determine when pricing fluctuates and when supplies are in high demand. “Hospitals should think about being able to use data in a much broader way,” Mr. Ramas says. “Imagine that I could look at historical information from purchases and see what happened in a specific geographic market after a natural disaster. So I can see what happens in the south of Texas when a hurricane hits and the shortages that happen with different items. When you see how that shortage affects pricing, you can tell your hospital to build that information into your disaster recovery plan.”
The process towards data management systems and EMR means that “most of that data that is being managed through consulting gigs, and hands-on work will be automated within the next few years without a problem,” Mr. Ramas says.
Learn more about VHA and its price benchmarking resource, PriceLYNX.
