The Art of Negotiating
Jennifer Myers
Vice President, Health Technology Services
Tim Browne
Director, Supply Chain Services
SEPAC
September 2012
Agenda
 ECRI Institute Overview
 Negotiating
Vendor Objectives
 Provider Strategies and Tactics
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 Unlocking the Handcuffs of Supply Chain
Capital Perspective
 Medical/Surgical Supply and Implant Perspective
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 Open Discussion
ECRI Institute
 ECRI Institute is a nonprofit organization that has
researched the best approaches to patient care over the
past 44 years.
 We are used by thousands of hospitals, public and private
payers, governments, and other constituencies.
 ECRI Institute is designated as an Evidence-based Practice
Center (EPC) by AHRQ and as a Patient Safety Organization
(PSO) by Department of Health and Human Services
(DHHS).
ECRI Institute
ECRI Institute does not accept gifts, grants, or consulting
contracts from the medical device or pharmaceutical
industries, and accepts no advertising. Federal income tax
returns for all employees are examined yearly to ensure there
are no investments in these industries.
Understanding The Vendor’s
Objectives, Process and Strategies
Vendor’s Objectives
 Get the highest price possible
 Sell my products/services
 Beat my competitor – move market share
 Close the deal quickly
Vendor’s Sales Process
 Create value
 Identify opportunities
Present their version of an ROI (fuzzy?)
 Present their version of the evidence (credible?)
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 Identify decision makers
 Establish trust
 Seek and make a coach and a champion*
 Establish negotiation points
Vendor’s Strategy
Seek and Make a Champion - *Miller Heiman Approach
 Seek out the buying influencer’s roles
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Economic
Technical
User
Coach
Champion – the person that can pull the trigger and sign off
 Analyze the stakeholders
Who is working against me? Who is on my team? Who is my “champion”?
Who is my “coach”?
 They play to the coach and ultimately the champion
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 The Coach leads them to the champion
The Coach tells them who and what to avoid
 They “coach” the vendor on navigating
the negotiation
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Vendor’s Strategy
 Confidentiality Agreements - tying your hands
 GPO Discounts – big brother is watching us
 Physician relationships – seeking and making the Miller Heiman
“coach” and “champion”.
 Convincing arguments – “We are giving you the highest discount
we’ve ever offered”
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Hidden costs – you may be getting the highest discount, but something else
may be inflated (service, supplies, T&C, etc.)
 Compliance agreements or commitment agreements – locking you in
“you committed to 80% compliance with GE and you’re only at 65%”
 Ties you to service, supplies, etc.
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― Make sure that
you negotiate service and supply costs up front at point of
commitment contract agreement to avoid
inflated costs and to drive utilization
Vendor’s Strategy
they use a team approach
VP Sales
Regional Sales Manager
Regional Service Manager
Sales Representative
Service Engineer
Provider’s Strategies and Effective Tactics
Effective Tactics
 Use a team, they do
 Use your value analysis committee
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Have a strong value analysis process established
Use value analysis teams to help navigate the decision and negotiation
process
Seek and present multiple good, solid and equivalent options
Control the deadlines/timelines
Design a custom strategy –
every vendor is different, every sales rep is different, every technology introduces
different issues, analyze what you are up against and custom design a negotiation
strategy
― Build it into your value analysis process
―
Effective Tactics
 Physician education on negotiations
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This is by far the most challenging issue related to contract negotiations
how they can help, how they can interfere
Develop an ongoing physician buy-in strategy
It requires a top-down approach (C-Suite mandate)
Show them the evidence: Use real examples of where they helped and
where they may have interfered
 Supply chain education on negotiations
Take the Miller Heiman (or similar) course, they do
 Learn and stay educated on what the vendors are using to train their
sales teams
 Read the Harvard Business School
publications on Negotiating Outcomes
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Effective Tactics
 Do not sign confidentiality agreements
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Huge impact on negotiations
Educate your lawyers, your clinicians, even your C-Suite
Once you sign, your hands are tied
You cannot benchmark your pricing – you will never know if your price is
good, bad or fair
If you transmit the data to any 3rd party you are liable – even your GPO,
your consultants, your staff
 The importance of benchmarking
Allows you to continuously gauge your progress
 Allows you to see where you stand
versus your peers, the national averages, etc.
 Allows you to negotiate better prices. Save $!
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Hospital’s Strategy
 Plan B, Plan C
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You need good alternatives to back you up
―If Plan A fails and no agreement is reached what is your
Plan B, Plan C, etc.?
―As long as you have good alternatives in place, if Plan A
does not work out you still have good, solid and
equivalent options
―Never fall in love with Plan A until it’s a done deal
Hospital’s Strategy
Removing the emotion
 Don’t allow
the end-users or clinicians to fall in love with one
make/model
 They need to be happy with at least 3 different makes/models
―You need a good Plan B, Plan C, etc.
―Get them to provide their needs, not the solution (make/model)
―You need to find them 3 or 4 choices that they will be happy
with
―Include them in the decision process, make them “love” all of
the options
Example: OR Integration
Narrowing down to
3 excellent choices
Unlocking The Handcuffs of Supply Chain
Process, Relationships and Tools
Devise a process for requesting capital items. Here are some
suggested elements of a process:
 Requested
―
items should be identified generically by their function
not by manufacturer and model number
 A brief statement
of need should accompany the request
― this equipment will be used to…
 A financial
justification form should be filled out
― demand, need, expected revenues, etc.
 An output-driven
Request For Proposal (RFP) should be prepared with
consideration and definition given to:
―What performance specifications are required
―What performance specifications are “nice to have”
―A grading system for respondents
Process, Relationships and Tools
 Exactly what kinds of relationships do you need to build, and with
whom?
You need to build collegiate, evidence-based relationships and you need to
build them with the key leaders of your organization—both clinical and
business leaders.
 It may be difficult at first, but you need to build relationships based on trust,
and you do that by:
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― (1) listening
respectfully to others
― (2) gathering appropriate data and documentation
― (3) remaining engaged and non-adversarial
― (4) repeating steps 1-3 time after time after time until you have become accepted as a
peer.
This will be a difficult task to accomplish with some of your peers and easier with others.
Process, Relationships and Tools
 In order to do the investigatory work necessary to complete the
process work, you will need a specific set of tools:
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Patient Safety Resources
Decision Support Resources
Evidenced-Based Resources
Value Analysis Resources
Price Benchmarking Services
Sales Training and Contract Negotiation Resources
Through Process, Relationships and Tools
Supply chain needs to:
 Devise a good process
 Build the right relationships
 Implement the best tools
Effective Approaches for Medical/Surgical
Supplies and Implants
The Value of Benchmarking Your Data
“Not having some kind of benchmark is
equivalent to driving at night without
headlights. You need to see where you are
going.”
ECRI Institute Member
Approaching Benchmarks
Price Benchmarks
Utilize benchmarks that not only compare your pricing to other members
of your GPO, but against all facilities types and GPOs within the US
Benchmarks Typically do not Account for:
 Rebates
 GPO Affiliations
 Sole Source Contracts
 Bulk Buys
 Agreement Types
 Consumable
agreement
 Disposable agreement
 Reagent agreement
 Cost per procedure
Utilization Benchmarks
Benchmark your utilization at the same time you benchmark your pricing
to determine if there are opportunities to further reduce costs by
modifying existing utilization practices.
Check Your Benchmarks Regularly
Price and Utilization are Moving Targets
Modern Healthcare/ECRI Institute Price Index
Ensure the Accuracy of Your Data
 You will have one opportunity to engage your peers
 You will lose future opportunities to engage your peers if you
present inaccurate information
 Double check your data frequently!
Once the Opportunities Have Been Identified
Engage Your Team
 Administration, especially the CFO
 Clinicians and physicians
 Suppliers
Continue the Engagement
 Additional opportunities will present themselves
 Team engagement when a contract is up is already way too late
 Strive for long term team engagement rather than episodic
Once the Team is Engaged
Some Tips to Keep Them Engaged
 Seek everyone’s
views and it will earn you their respect and trust
 Remove barriers to change
 Set a pace that is appropriate for your culture
 Assure your partners that proposed changes will not affect
quality, safety and service
 Provide your partners with cost, outcome and comparative data
that support clinical changes
 Hold your partners accountable during the process
 Try not to force change as it will typically result in short term
success
If engagement proves to be difficult
 Consider utilizing an unbiased 3rd party to present the facts
 Savings and Utilization Opportunities by-
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Supplier
Category
Item
Physician/Clinician
Timing of Initiatives
 Evaluate the Optimal Time to Commence Initiative
Are the contracts up for renewal?
 What is the fiscal year of the suppliers?
 Are there technologies on the verge of FDA approval that you would like
covered under the contracts?
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Once everyone sees the common
opportunity and is engaged in the process
 Construct a Plan
 Don’t get caught in the weeds
 Set a schedule
 Execute
Contracting Options
Sole Source Contracting
 Categories that do not Warrant Multiple Suppliers
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Low impact on patient outcome
― Combs, Bath Basins, Office and Industrial
No trials required
 No physician preference
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Supplies
Capitated versus Line Item Contracting
 Categories that Warrant Multiple Suppliers-Typically PPI
Products
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Pros
― Allows hospitals
to utilize multiple suppliers
― Level the playing field for prices of similar products
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Cons
― Lose the ability
to benchmark
― Rapid introduction of new products, typically exceptions to the cap, could quickly
diminish the percent of items covered under capitated agreement
― Difficult to manage from an MMIS and OR perspective
Methodologies to Consider
 Value Based Purchasing
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The Patient Protection and Affordable Care Act (PPACA)
― Quality
vs. Cost
 Value Analysis
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Primarily for introduction of new/replacement products
 Strategic Sourcing
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Finding the appropriate supplier to partner with
Once the Initiative is Complete
 Celebrate your achievements together
Supply Chain, Clinicians, Physicians
 Revenue Sharing
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 Closely Monitor the Results
Document your ROI
 Compare spend and utilization with historical data
 Develop scorecards
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 Identify and replicate your success in future initiatives
Profile categories on an on-going basis
 No category should be considered taboo or exempt from the process
 Leave no stone unturned
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THANK YOU