Case Study
Optimizing Medical Device Contracts: A Roadmap to Sustainable Cost Management for Healthcare Systems
Client Profile:
A US-based, mid-sized nonprofit Integrated Delivery Network (IDN) with five hospitals and over 500 beds, this health system encompasses teaching hospitals, imaging centers, specialty care facilities, and urgent care centers. With annual revenue exceeding $7 billion, the IDN is committed to delivering outcome-based care to diverse communities. Medical device acquisitions prioritize physician preferences, while the supply chain team collaborates closely with contracting sources to monitor affordability and control costs. Renowned within the healthcare sector, this system seeks to expand globally and enhance operational efficiencies.
Client Challenge
The IDN faced escalating medical device costs and decreased usage due to supply chain shortages, reduced procedure volumes, and rising raw material costs post-COVID-19. Device contracts, often negotiated by sales teams focused on maximizing profitability, typically lacked optimal initial pricing. The IDN encountered difficulties in securing competitive pricing due to the mix of physician-preferred products and limited market share or purchasing commitments. Available pricing strategies—such as bundling, rebates, and enterprise contracts—were challenging to access amidst market pressures and limited resources. For instance, despite spending over a million dollars on implantable and disposable cardiovascular products, the IDN faced annual cost increases exceeding 25% with group purchasing organization (GPO) pricing.
TransformEdge Solution
To address this, the IDN implemented a targeted strategy for medical device contracts, appointing an expert negotiator to ensure competitive pricing on all renewals and new agreements. This negotiator emphasized relationship-building and identified savings opportunities across contracts. Specifically, for the cardiovascular line, the negotiator employed a “say no three times” approach to resist unwarranted price increases—a tactic inspired by best practices in supply chain management.
Outcome
By rejecting unsupported price hikes and demanding data-backed proposals, the IDN challenged suppliers to align pricing with industry best practices. Ultimately, negotiations concluded with a 3% increase, showcasing the IDN’s commitment to value-based purchasing and informed negotiation. The IDN now plans to implement SKU consolidation and apply insights from recent negotiations to future vendor contracts, emphasizing the importance of data-driven pricing and partnership-focused engagements in sustaining affordable, high-quality care.