Author Chris Provines

In this article, the author presents eight specific buyer trends that medical in- dustry suppliers should watch out for in 2016 as a result of increased profes- sionalization of provider procurement. This industry specific example provides pricing strategies that can be applied to multiple industries. Author Chris Provines is a 24-year veteran of the healthcare industry. He is the CEO of ValueVantage, and the author of Stra- tegic Pricing for Medical Tech- nologies (2012), and his newest book Healthcare Value Selling (2014). He is on the PPS Board of Advisors and is an Adjunct Professor at Rutgers Uni- versity where he teaches in the MBA program. He can be reached at

The Pricing Advisor, January 2016

As healthcare providers around the world continue to come under pressure to contain costs and improve outcomes, professionalizing procurement practices is increasingly seen as an area of opportunity. It makes sense given that supplier related costs can represent 30-40% of overall provider expenses. Just as important, supply decisions can often have a significant impact on the total cost of care and reimbursement incentives in some markets.

The fact that providers, on average, are starting at a relatively low level of procurement maturity means there should be a lot of opportunity. Harnessing trends and adopting best practices from other industries should enable providers to extract greater value from the supplier network. As the professionalization of provider procurement happens, there are eight specific buyer trends suppliers should watch for as signs of a maturing buyer.

Professionalization of Procurement

While there are certainly well run provider procurement organizations, as an industry, there are significant opportunities for improvement. In one cross industry survey of procurement organizations, healthcare ranked at the bottom or near the bottom in level of maturity in many practices. A broad healthcare industry survey showed that more than half of provider respondents described their own supplier chain practices as immature. The professionalization of procurement practices by healthcare providers should create significant value for the healthcare system. It’s an important driver to watch since it has implications for many healthcare industry participants.

Buyer Trends and Implications

For medical technology (“MedTech”) suppliers, the professionalization of provider procurement can be observed through the sourcing and supplier management approaches providers use. There are eight specific buyer trends to watch for in 2016 and beyond:

  1. Value-oriented procurement: Value analysis committees are in place in most hospitals in the USA to ensure value based supply decisions. In other markets like Europe, there’s an increased focus on value and outcomes in supply decisions through the use of Most Economically Advantageous Tendering (MEAT) criteria in the public sector.
  2. Collaboration: As buyers become more sophisticated, they look to develop collaborative relationships focused on goal alignment, deeper integration with suppliers, trust, and mutual gain. Buyer-Seller collaboration is often a big value lever in other industries and should become much more important in healthcare.
  3. Transparency: Big data along with cloud-based procurement and benchmarking solutions are enabling buyers to have deep insights into their own spending as well as market prices and the value of competing suppliers’ Buyers will be able to harness spend, price and value transparency to drive better cost and clinical outcomes.
  4. Unbundling: In many industries, sophisticated buyers try to find creative ways to save money. One approach is to “unbundling” a supplier’s solution and source the individual components of the solution to save money. Unbundling the sales and clinical support from the device (“rep-less” sales model) is a trend beginning in parts of MedTech
  5. Generic devices and supplies: Generic and low-cost solutions have had an impact on many industries. The use of lower-cost “good enough” generic devices and supplies should grow in
  6. Self-contracting and regional buying: Consolidation of customers, growth in cloud-based procurement solutions, and the need to better meet local needs is driving purchasing away from national GPOs to regional buying and self-contracting models.
  7. Outcomes and performance-based contracting: As buyers become more sophisticated, they will increasingly require suppliers to guarantee performance, put value at-risk or tie pricing to the outcomes delivered.
  8. Device formularies: Smart buyers are increasingly turning to “formularies” to guide which device or supply to use for a given treatment pathway. These formularies are normally evidence-based and used to optimize costs and outcomes.

Many MedTech executives recognize the change that is occurring. For example, in a recent survey this author conducted along with Model N, nearly 80% of MedTech executives said price transparency will have a significant negative impact on customer relations and margins in the future. Smart companies are not only watching for the buyer trends, but are looking to leverage these changes to their advantage.

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