Complex Sourcing Made Simple

Bill King, for HealthLeaders Media, June 17, 2010

It's like we say "po-tay-to," and they say "po-tah-to." When sourcing high-complexity physician preference products, it certainly feels that we are not speaking the same language. By forcing the manufacturers to say "po-tay-to," or define their price tier buckets, we regularly leave money on the table. And in today's economy, that is simply no longer acceptable. We have to get smart about our sourcing tactics for high-complexity and physician preference categories.

You cannot use the same approach when sourcing patient slippers as you do when sourcing orthopedic implants. Forcing all suppliers to put their proposals into the same buckets leads to similar-looking, or at best average, bids. In reality, we are sourcing those two very different categories the same way. Why is that? Well, it's much easier to compare bids that have the same attributes, that's for sure.

It's kind of like not being able to see the forest for all the trees. We all know there has to be a better sourcing method for physician preference categories; the problem is we just aren't sure how to do it. With the cost of physician preference items outpacing Medicare reimbursements by more than five times in the past 20 years, we need to find a solution for these difficult contracting categories.

I have certainly seen my share of bid proposals that were about as ugly as a mud fence. For example, we've received proposals with 14-page responses to a single question, and value adds so complex it takes nearly a month to negotiate. In instances like this, it's clear that there was no collaboration involved. Yet another reason they turn out so badly is the constricting components typically found in most of our healthcare RFPs. We imitate previous bids that may not have any relevance to the products in today's market.

The best sourcing practice in the future for highly-complex, physician preference categories will contain collaborative sourcing as one of its most important components. It is what allows you to receive the proposal in the way that the suppliers offer best value. Providing suppliers this flexibility lowers prices, plus you get the bonus of making lifetime friends with your CFO.

How about if I told you that you can accurately score bids by comparing apples to oranges, oranges to bananas, bananas to apples, or any combination thereof? Now hold on just a minute. I know what you're thinking. And, no, using the standard healthcare sourcing approach will not work. You have to think outside the box and to be quite honest, outside the building.

So, how does collaborative sourcing really work? It works by allowing suppliers the flexibility to submit proposals in the structure that permits them to express their unique pricing configurations, while letting you compare across different bids. For example, supplier A can submit five standard price tiers, six price value adds for conversions, two discount freight options, and three prepaid delivery discounts. Let's call this bid proposal "apples." Supplier B can submit three standard price tiers, two volume aggregation tiers, two hospital behavior change discounts, and an additional discount for early payment. Let's call this response "oranges."

The collaborative sourcing tool takes into account all the possible scenarios of the apples and oranges and breaks them down into an overall value that allows you to compare total value per option to be compared among RFP participants. Now, you can award based upon overall value that includes an analysis of every option offered by the suppliers.

This type of collaborative sourcing still doesn't address the preference that some physicians have toward particular suppliers. However, by being able to provide detailed scenario analysis supplemented with business and clinical requirements, collaborative sourcing quickly demonstrates the financial and the clinical impact of the purchasing choices. What's even better is that clinical effectiveness and clinical outcomes data can easily be incorporated into the event to help identify viable alternative functional equivalents.

Wouldn't it be great if once the contract was signed our work was done? Au contraire, contraire. Physician preference item pricing can be about as varied as airline ticket prices. The multitude of pricing options such as complex discount structures as well as commitment requirements make ongoing price visibility an absolute must for complicated categories.

To answer the call for price transparency, business centers will be created to capture the proposals and compare them against current buying patterns. You will then be able to identify new buying patterns that might require a category or portion of a category to be re-negotiated. Using the data in the business center as a template for your sourcing events will help to speed up that process. The best part is that this business center will be a collaborative one, one that shares data, clinical outcomes, utilization, benchmarks, and a wealth of additional information. When we work together, we truly can make a difference in this tough sourcing area.

Bill King is manager, Healthcare at BravoSolution, a supply chain solutions company based in Malvern, PA.
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