Hospital supply price and cost transparency has been an issue for a long time. A 2012 study by the U.S. Government Accountability Office (GAO) reported that medical devices suffer from opaque pricing, which leads to lower hospital bargaining power and higher costs. In the past, the key users and influencers of supply choice, physicians, were often unaware of supply prices and procedure costs. Recent studies, though, show that transparency is beginning to shine a light on medical supply costs. This appears to help change purchasing and utilization behavior, and could be an issue for many suppliers.

Published studies across a variety of supply areas – from spine to sutures to joints – illustrate the impact of greater transparency. A study by researchers at Wharton showed that price transparency has the potential to improve hospital bargaining power and reduce supply costs. Other recent research show that combining price/cost visibility with physician incentives can bring additional savings. A study published this year in JAMA indicated that physician-level cost scorecards combined with a department-level incentive reduces costs. In this study, physicians who received individual procedure-cost scorecards saw an almost 10% decrease in surgical supply costs.

Other studies have confirmed that greater visibility to costs, combined with some mechanism to share savings, result in supply cost savings. Greater price/cost transparency is being driven by: advances in data transparency, the growth of new supply chain service companies, and the maturing of hospital supply chains.

Price and cost transparency helps providers to take advantage of three potential cost-reduction levers:

  1. Price savings: Help hospitals identify price savings or improve negotiation leverage
  2. Utilization: Lower cost by reducing over-utilization of supplies
  3. Specification management: Lower cost by using best-value or most appropriate supplies

Supply Chain Ecosystem Improving Price Transparency

The U.S. annual spending on medical devices and diagnostics is approximately $200 Billion. It’s not surprising, therefore, that supply chain service companies are moving quickly to take advantage of the opportunity to help providers reduce costs. There’s now a large ecosystem of businesses focused on helping providers take costs out and bring value in. These include: Vizient, MDBuyline, ECRI, Curvo, BroadJump, ProcuredHealth and many others.

A number of these companies provide a proactive means for providers to identify and act on savings opportunities. For example, Curvo offers a free open price benchmarking App. The App allows providers to upload their data and receive price benchmark data from 300 hospitals. Vizient has a similar product that allows hospitals to do real-time price benchmarking. ProcuredHealth offers a number of services including device formularies. These supply chain service businesses will likely continue to innovate in order to reduce supply costs.

Suppliers Are Aware, But May Not Be Ready

Most suppliers know transparency is coming. Two years ago, I conducted a study – along with Model N – of trends in the medical technology industry. In the survey, almost 80% of medical technology executives polled believed that price transparency would be a significant issue within 10 years. Many suppliers have wide, unexplainable supply item price variation across customers. This is usually the result of poor pricing practices or widespread individual account-level negotiations.

With the continued pressure on providers to reduce costs, and the evolution of supply chain service companies, we may be at a tipping point where unprepared MedTech companies begin to suffer the full force of price/cost/value transparency.

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