The Dangers of Getting Too Friendly With Your Suppliers

Ensure that your supplier relationships are not working against you.

Ensure that your supplier relationships are not working against you. 

Personal relationships with healthcare vendors can unduly influence purchasing decisions and prevent you from getting the best prices and contract terms for capital equipment, med-surg supplies, and outsourced services. Vendor representatives establish long-term relationships with their healthcare organization contacts, including influential physicians. While these relationships may be genuine and mutually beneficial, vendors know that a real or perceived friendship can make hospital contacts reluctant to demand full transparency or to push back on costs, terms, and equipment options. Even when health system purchasers understand a vendor relationship is problematic, they often shy away from insisting on certain contractual terms because of the perceived opportunity cost of damaging the relationship and starting anew with someone else.

Even large healthcare organizations can be vulnerable to this dynamic. One prominent health system was paying 20 percent more overall for its pandemic supply storage contract than smaller health systems that had established contracts with the same supplier over the previous months. Most of the cost difference was due to additional fees being charged to the large health system that were not included in the other contracts.

Vendor relationships impact the choice and cost of physician preference items (PPIs), which account for 40–60 percent of a hospital’s total expenditures on supplies. PPIs are items for which physicians have strong preferences and make the choice in hospital purchasing — typically not based on cost but rather on personal experience with the device and relationships with the vendor’s sales representative.

Relationships between medical device representatives and surgeons are especially influential because physicians rely on these vendors for technical assistance and advice regarding technological advances. Medical device reps train surgeons how to properly use the joint implants or other devices and are often present in the operating room, assisting with the procedure. The reps, who are responsible for ensuring that all the instruments and components needed for each surgery on their schedule are on hand and ready for use, often play an active role during the surgery. According to an anonymous web-based survey of 43 medical device representatives who attended an average of 184 surgeries in the prior year, 88 percent of reps (38 of 43) provided verbal instruction to a surgical team during a surgery, and 21 percent (nine of 43) had direct physical contact with a surgical team or patient during a surgery.

Physicians who have a close relationship with device reps may be reluctant to consider purchasing clinically comparable, less expensive devices from other manufacturers. One recent study found that surgeons’ preference for hip and knee implants is heavily influenced by technology/implant factors and sales/service factors, with implant cost and vendor reputation less influential. Another study found that the close relationship between device reps and surgeons may be driving up supply chain costs. Medical device representatives influence what type of products hospitals purchase through marketing strategies and drive surgeon preferences for specific devices regardless of price. Hospitals are also unlikely to push back against vendors as long as surgeons rely on them for device training.

RELATED CASE STUDY: TractManager’s Med-Surg tool helped a Northeast health system uncover GPO contract pricing noncompliance and optimize its spend. The result: annual savings of more than $1.5M in orthopedics and $946K in cardiology

Due Diligence is Essential

If you fail to perform due diligence around your purchasing decisions, you may wind up purchasing the wrong equipment or services or paying too much for them. This applies to everything from capital equipment through consumables, services, and physician preference products. Due diligence often goes out the door when health system purchasers and/or physicians are too friendly with a rep.

To make purchasing decisions based on unbiased data instead of vendor influence:

Validate and verify pricing and contract terms to create transparency and strengthen vendor relationships. Although it seems counterintuitive, questioning vendors about pricing and contracts builds trust. Conduct true due diligence that creates transparency and ensures a legitimate quote.

Analyze your quotes. Compare the quoted prices to regional and national benchmarks to determine whether the prices are competitive. Examine benchmarking data for list price, component price, warranty terms, service contracts, and other measures. Looking at total lifecycle costs by assessing market dynamics, clinical efficacy, reimbursement reviews, and other factors helps you purchase the right products or services at the right price.

Standardize your new product decision-making process. Make purchasing decisions based on objective clinical evidence and market data, not subjective opinions and undue vendor influence. To do this, follow a standardized, organized, stepwise decision-making process that everyone can understand and visualize. Automated workflow software standardizes your decision-making process and provides transparency and visibility.

Monitor gifts and nonmonetary compensation provided to physicians. Drug and medical device companies encourage brand loyalty through payments for food and beverages, travel, and speaking engagements. You need to be aware of the financial relationship physicians have with these companies and the potential influence these incentives may have on physicians’ choice of medications and PPIs.

TractManager’s Spend Management solution includes spend analytics, benchmarking, contract and quote analysis, and invoice reconciliation to help you make purchasing decisions based on unbiased data. TractManager’s customers who adopt our best practices spend 17 percent less on nonlabor and outsourced services. To learn more, read our white paper, Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic.”

Author:

Tom Watson

Senior Clinical Strategist

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TractManager’s Purchased Services program helped a health system in the Northeast save $11M on imaging and biomedical service agreements.

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Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic

Vendor relationships need to be healthy, professional, and transparent to ensure you’re getting the best pricing and contract terms. Discover ways to enhance your relationships.

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