Clarity and transparency — a clear need in the capital process

February 24, 2021
By Tom Watson

Healthcare capital workflow has evolved from simplistic clinical requests to a strategic decision-making process involving value analysis.
There are many steps in transitioning to this process, but the constant of a vendor-issued quotation offering a solution with a proposed price to acquire the technology or system of interest remains core to the process.

A key factor in optimizing both your capital funds and utilization of your valuable human capital in supply chain is to focus on the quoting and offering process that takes place before agreeing to a price and issuing a purchase order. A seemingly simple, straightforward step in consummating the deal is often either a win for the vendor or a win for the healthcare organization. Proper communication and guidelines by the healthcare organization with all stakeholders adhering to these best-practice requirements can result in a win-win for both vendor and client. Pricing and quoting trends significantly impact how purchase decisions are made. Current trends make the process longer and more expensive for both sides, a situation that is less than optimal.

As health systems centralize their sourcing and purchasing decisions, buying is shifting from the department to centralized value analysis and supply chain processes.

• Consolidation of provider organizations and healthcare suppliers is driving change.
• Organizations are challenged to stay current with the unprecedented rate of new technologies and products.
• Clinical, operational, and financial considerations require multiple decision-makers.

Opportunities to use analytics and metrics, for organizations with access to extensive historical data are emerging. Data provide significant insight and transparency to suppliers and buyers alike. Data-driven, analytic insight is actionable, resulting in expedited purchase decisions.

Quote transparency (QT)
QT reflects the format, data, and clarity offered to the client for a vendor’s formal quoted offer. A weighted average of seven parameters offers an overall quote transparency rating on a scale of 1 to 5, with 5 being the most transparent: 20% list price, 20% component level price, 20% unique part numbers, 15% discounting or pricing justification (reason), 10% quoted date/expiration date, 10% unique quote number, 5% warranty is stated.

Actual data from a 12-month review of seven major vendors offering CT imaging systems shows the disparity in quoting format trends. Data metrics reveal a market average of only 3.3; the top score is 4.6, followed by 3.7, 3.4, two at 3.3, and two well below the average at 2.9 and 2.6. This reflects an average well below an ideal threshold, with only one consistently coming close to a transparent standard quoting process. A lack of quote transparency places a healthcare organization at a significant disadvantage at the outset of the capital purchasing process.

Discounting transparency (DT)
DT metrics reflect fair, accurate, and actionable discounting for specified criteria, ideally with very limited additional time, effort, and resources required to get to a best and final price. Each capital quote should be qualified by the conditions or reasons a discount is offered by a supplier. A comparative price analysis based on comparable deals from the same vendor and model can identify additional discounting/savings from historical data.

This data, based on the same CT vendors, helps identify which vendors’ processes shorten the decision timeline with a viable offer sooner, with quotes showing little or no additional savings. By comparison, those that routinely issue low initial offers require extended discussions and negotiations that push clients into a deadline decision just to get the deal done. While the offer-negotiate-offer-negotiate game will likely not disappear, supply chains can drive change requiring real, competitive quoting from the start.

For the same CT market, only 43% of the quotes show a true best and final offer, 37% still show that discounting up to 10% can be negotiated, 14% show an 11%–15% increase in discounting should be negotiated, 4% show up to 20% still available, and 2% reflect that savings of more than 20% are still available. Even if you consider that the lowest 6% are not intended to be real offers and are likely more for budgeting, that leaves almost 60% that still require additional work, negotiation, communication, and discussion. This extends the buying cycle for vendors, and results in ever-mounting work for supply chain staff.

Tom Watson
Requiring vendors to offer quote and discount transparency is a win-win strategy
The QT and DT data analytics evaluate the level of transparency and quality in quote formatting, reflecting quoted practices by a vendor. This translates into smoother supply chain evaluation, assessment, negotiation, and purchase order process. It saves your organization time, staffing resources, and money, including capital costs and operational costs in supply chain resources, maximizing efficiency. QT and DT provide guidance for vendor quote submission. These should become part of capital value analysis best practice. Your organization will be able to purchase the right technology from the right vendor and at the right price, with efficient use of resources, time, and capital funding.

About the author: Tom Watson is a senior clinical advisor with TractManager Inc, a Symplr company.