Contract price misalignment is one of the leading causes of pricing issues in the healthcare supply chain, and among the most critical issues the industry faces today. Inefficiency and inaccuracy in contract pricing continue to create waste and drive up costs for all supply-chain players. Price discrepancies alone cost healthcare providers more than $92m annually.
Pricing in healthcare is a dynamic process. Each month, price changes affect between 10,000 and 20,000 med-surg products. While the industry has saved more than $1bn annually by automating transactions focused on the “basics” of placing an order, including delivery and billing, it has yet to bring that level of automation to more advanced transactions, such as contract price authorizations, sales tracing and rebate requests.
As a result, manufacturers, distributors and providers attempt to manually reconcile price changes within their own systems. A typical distributor spends 30 minutes on average to upload a single pricing spreadsheet. This reliance on manual processes creates significant work, as well as rework to correct errors, resulting in a higher cost of doing business for all parties involved.
When it comes to healthcare pricing, the pressure to break free from outdated ways of doing business has never been greater. In fact, to hasten the move forward, some suppliers, distributors and integrated delivery networks (IDNs) are including automation requirements in their business partner agreements. Industry regulations and government mandates are putting increasing pressure on trading partners to automate or potentially face fines.
Supply-chain professionals must look beyond product price to the overall cost of doing business with one another. They must find ways to improve efficiency, increase visiblity and reduce costs. That can only be accomplished through greater levels of standardization and automation across pricing processes.
As the healthcare industry moves to resolve decades-old price alignment challenges, standards and automation have taken center stage. The encouraging news is that standardization among stakeholders has taken a giant leap forward with the recent Healthcare Industry Distributors Association (HIDA) recommendations. With input from more than 120 organizations across the healthcare supply chain, HIDA published a set of recommendations and best practices — in effect, a roadmap — that focus on automation, standardization and timeliness of contract change notifications.
Following are the three focus areas will have a positive impact on price alignment.
Standards. A lack of standard processes across the industry creates confusion among stakeholders, causing delayed processing as well as increased labor and operational costs. It also limits stakeholders’ ability to bring to bear the benefits of automation. An agreed-upon standard ensures that every stakeholder is “speaking the same language.” For transactions, HIDA recommends electronic data interchange (EDI) formats, with character-separated values (CSV) files matched to EDI formats an acceptable alternative.
Automation. Today, the level of healthcare supply-chain process automation falls between 25 and 30 percent. Automation streamlines processes, enabling efficiency and reducing costs. In addition, it frequently influences trading partner choice.
Organizations with streamlined and efficient processes have a competitive edge over those relying on manual processes. It’s more cost effective, and quite simply, easier to do business with partners that conduct business electronically. The healthcare industry must strive for nothing less than 100-percent automation. Technology solutions in the market have the ability to convert CSV spreadsheets to EDI formatting or vice versa, allowing for instant file transfers and easier correspondence among trading partners. Using standardized EDI or matching CSV files across the supply chain, rather than massive spreadsheets with inconsistent formatting, streamlines processes and minimizes errors and confusion that waste time and resources. As a result, there are fewer invoice discrepancies, fewer credits and rebills from distributors, and fewer chargeback and rebate issues with manufacturers.
Timeliness. Currently, there aren’t regulations outlining deadlines for contracts or pricing updates. HIDA advocates adopting tighter and stricter timing recommendations. Creating deadlines for various products and contract negotiations, activations and changes, and encouraging partners to follow them, allows time for everyone to load accurate pricing, while also creating much-needed urgency.
Price alignment is a challenge, but it’s one that can be overcome. The healthcare industry is at an inflection point with pricing, similar to where it was with core purchasing 10 to 15 years ago, when basic supply-chain processes were just becoming automated. Now, core purchasing has reached near complete automation, and the goal has shifted to achieving pricing perfection: getting the right products to where they need to be at the right price.
Those involved in the healthcare supply chain should feel encouraged about developments in pricing. Industry collaboration on best practices and standards, coupled with robust technology, are enabling greater levels of efficiency and communication across parties. As all stakeholders move toward the same formatting standards and commit to deadlines, pricing alignment can happen. The industry has done it before, and working together toward a common goal, will certainly do it again.
Susan LaFountain is product contract data manager with GHX.
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