Healthcare Supply Chain Contract Pricing: Public Information or a Strategic Competitive Advantage?

A number of groups in the health care industry, including Group Purchasing Organizations, believe that supplier contract pricing information should become part of a knowledge base shared by hospitals subscribing to certain information services. This issue has been simmering for years having heated up several years ago with a lawsuit between Aspen Healthcare Metrics and Guidant Corporation (now part of Boston Scientific). Among other products, Guidant makes cardiac stents -- small expensive devices inserted in blood vessels to prop them open. Guidant believed that their pricing to individual customers was confidential information and contractually required hospitals to maintain their contract pricing as confidential.

But organizations such as Aspen and ECRI that, among other services, make money selling contract pricing information to hospitals, believe that hospitals have the right to share that information so that other hospitals can use it to improve their own pricing position. Their position is that sharing such pricing creates a level playing field for hospitals wanting to compete with other hospitals. Ironically, GPOs that claim to negotiate pricing on behalf of members but often have trouble getting good pricing on a class of products known as physician preference items -- of which stents are a part -- are also in favor of what they call price transparency. Note: Stents are an integral component of the product (clinical outcomes) sold by hospitals. They are not paper clips.

The U.S. is in the midst of its greatest struggle ever to create some form of meaningful healthcare reform as a daily trickle of hospitals close down, file for bankruptcy reorganization or are acquired to stave off financial ruin for a bit longer.

Hospitals face enormous cuts in reimbursement and budget crushing costs to become compliant with government mandates regarding electronic healthcare records implementation, yet the two phrases one never hears linked together from hospitals or the plethora of industry organizations to which they belong are "supply chain" and "strategic competitive advantage". Among the most significant success stories in industrial development over the past twenty years is the emergence of the supply chain as strategic competitive advantage -- along with perhaps Walmart, the supply chain company that most think of as a retailer, among the most illustrative. And where are hospitals when it comes to supply chain strategic competitive advantage? Arguing among themselves over who should get to copy off of whose test paper.

This is not to say that price is the only factor in supply chain success but one must truly wonder how many hospitals will choose to make their supply chains their own strategic competitive advantage to save precisely one organization, their own.

So now it's your turn: Should raw materials and subassembly contract costs be confidential to your company or be given freely to data collection organizations to share with your competitors? Do you believe that the prices you negotiate are part of your company's strategic competitive advantage?

Lynn James Everard

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