Over the past couple of years, I’ve written extensively about the changing hospital buying behavior, and the implications for healthcare suppliers. There are many forces driving a fundamental shift in buying behavior. While most people who have responded to the writings agree that we are in the midst of a fundamental shift, I occasionally hear from readers who say this is simply a cycle.
They argue that like all cycles, there are ups and downs. Sure, there are some changes in behavior and pricing pressure now, but don’t worry. We’ll go back to the old days of how supplies were purchased. It reminds me of the lyrics from Bob Marley’s famous Three Little Birds song…”don’t worry about a thing, ’cause every little thing gonna be all right!”
Are we in a cycle of pricing pressure or a fundamental shift in buyer behavior? Will every little thing be all right? The people who have argued for this just being a cycle point to the changes in the US healthcare system in the past. They talk about things like the introduction of HMOs, PBMs, and DRGs. Likewise, the growth of GPOs and IDNs, and the Balanced Budget Act in the late 1990s are mentioned as past drivers of pricing pressure. These are all great points.
Yet, when you step back and look at the evidence, it’s hard to argue against the idea that we are in the middle of a fundamental shift. Last month AdvaMed released a study that showed that the prices of implantable devices declined 17-34% from 2007-2011. This week researchers released a study about the projected future declines in hospital per patient revenue under Obamacare (ACA). Healthcare reform is projected to reduce hospital revenue each year for a decade.
Hospitals are already responding to these changes. Cleveland Clinic and other prestigious hospital systems have announced layoffs. According to the US Bureau of Labor Statistics, the hospital industry shed 9,000 jobs in May and another 4,000 in June. In addition to reducing labor costs, hospitals are forecasted to significantly reduce operating costs and limit capital investments. This will, undoubtedly, trickle down to suppliers.
This financial pressure is only one part of the puzzle. If you include a maturing hospital supply chain, value-based purchasing, ACOs, new supply disruptors, new care models, increasing price & outcomes transparency, hospital consolidation, and physician employment trends, then you have a powerful mix of forces driving a shift. Some suppliers may hope that this is just a cycle, and that every thing will be all right. Conversely, smart suppliers are preparing for the shift.