th-7Hospitals and other providers face unprecedented change. Reimbursement cuts, pressure to improve quality and outcomes, consolidation, and new population-based payment models are just some of the forces driving change. In the United States, the Affordable Care Act (ACA) has ushered in a series of penalties and incentives to reward or penalize hospitals for the quality of care. Up to 5.5% of Medicare impatient revenue is at risk in fiscal year 2015 and this goes to 6% in 2017.

One area that is getting increased attention is the supply chain and supplier management. Supply costs are the second largest category of operating expenses for providers and are growing at the fastest rate of all expense categories. Furthermore, now more than ever, the quality of a supply item has the potential to impact not just costs, but also revenue for a provider because of Center for Medicare and Medicaid Services (CMS) pay-for-performance programs and the growing focus on population health.

This growing pressure, along with the maturing of the hospital supply chain, means that suppliers have both a challenge and opportunity. The opportunity is to help hospitals use supplier solutions and capabilities to take costs-out and bring value in. Yet, for many suppliers, this presents a challenge. Too often suppliers see the features and benefits of their solution and can’t see value through their customers’ eyes.

Being a real supplier partner means putting yourself in the customers’ shoes and seeing the world from their perspectives. With this mindset, you can approach supply chain and purchasing not as just another vendor hawking your product. Rather you can be seen as a partner who is trying to help them make a more informed buying decision and help them succeed in the evolving healthcare market. In order to do this, you have to understand how supply chain and procurement extract value from the supplier network.

In the procurement or sourcing world, there are a number of “value levers” buyers can utilize to extract value from the supplier network. Of course, the one many suppliers feel is the price lever. Although it’s an often used tool for many buyers, there are other ways to extract value out of the supplier network.  Many of these levers take on increased importance as the hospital business model evolves and with new payment models emerging. In total, there are eight buyer value levers to consider:

  1. Reduce price
  2. Specification management
  3. Supply TCO / operations
  4. Total patient care costs
  5. Intensification of relationship
  6. Outsource/Insource
  7. Capital efficiency
  8. Revenue

As the buying decision moves from clinical to economic buyers, and as the hospital business gets more complicated, there’s a new level of sophistication needed  by suppliers. Helping the customer connect the dots between your solution and their value levers is going to get more important. Suppliers who can do this well, will be seen as real partners not just another company trying to push their solution.

 If you enjoyed this article, please take 5 seconds and share it with your social network.

For more details on the eight buyer value levers and a more in-depth discussion, please download a complimentary copy of our research brief HERE.