PEOPLE & OPINIONS is a common practice of trying to “market
value out” of existing mainstream prod- ucts, and we aim to offer some guidance as to the need and some steps to con- sider how to build value into product development.
Instead of “forcing” a solution onto a provider to address a pain point, for which the product might not be intended to address, for the sake of a “win”, pro- viders have an opportunity to use the articulated pains point as a “demand/ market pull” signal to drive their R&D. This has potential to result in a product that addresses specific needs associated with clinical, and likely financial, alue for the health system, thus generating the needed sales that offset the R&D costs of the product. his type of win benefits both key stakeholders. Contract for value – Contracting for value will increase with greater use of legal frameworks to provide assur- ance and incentivize performance. To date, contractual agreements have been largely simple structures based on the box standard provision of products. Transitioning to value will require sup- pliers to be able to “put their money where their mouth is” – but the rewards will be longer term partnership/security of business and the potential to increase profits, but not merely through gain shar- ing agreements.
3 steps in path forward Change the game: One way to operation- alize contracting for value is to no longer view shared risk and shared reward as mutually exclusive. This would require partners to move from a “skin in the game” to a “skins game” mindset like in golf, wherein both parties win and each does well. To do this, suppliers must strive for more balanced arrangements that encompass both shared risks and rewards. This way suppliers and provid- ers win and lose together, rather than there almost always being one loser and one winner. This type of arrangement incentivizes both sides to work in the best interest of the other because it also benefits them.
Suppliers that initiate shared risks and rewards agreements, instead of relying on providers to proffer them, separate themselves from a competitor. This could potentially be an attractive proposition for GPOs and national aggregation enti- ties to entertain more offerings from the
given supplier. Because this approach is intended to drive cost reduction to the overall system of care, it’s not as focused on driving down the cost per unit. For GPOs, this has the potential to yield higher contract administration fees (CAFs) due to greater spend via the contract mechanism. The burden will essentially shift to the GPOs to educate their member organizations about these types of contracting mechanisms to avoid off-contract purchases that would jeopardize the ultimate goal. Create vertical integration strategies: A possible consequence of the move to outcomes-based healthcare provision is an increased use of vertical integration through the medical device industry to provide the required skills and entrepre- neurship of the SME sector to provide holistic and innovative solutions. This entails transitioning away from the pro- vision standalone products to providing comprehensive solutions. But given a supplier’s core competency in product development, it will likely need to part- ner with smaller, more entrepreneurial entities to develop comprehensive solu- tions. An example of this is the automo- tive sector, in which a manufacturer’s plant is geographically surrounded by its Tier 2 and 3 suppliers. These suppliers provide materials and components based on their areas of specializations that are coupled with the core of the automobile (the product from the manufacturer) to put forth a cohesive and comprehensive solution. Address incentive misalignment: This is not as simple as changing the reward system; it is also about revamping the culture of the sales and marketing func- tion. Suppliers must reward and incentiv- ize their workforce to create and deploy value for providers. Currently, suppliers incentivize personnel to focus on short- term goals (e.g., quarterly/annual sales targets) that are not intended to drive value for providers. Short-term or short- sighted incentive models put the brakes on the adoption of strategic value based and run counter to win-win relationships. Value creation for both buyers and sup- pliers is more likely be manifest over a 3- to 5-year horizon. Therefore, the incen- tive mechanisms need to be aligned to ultimate goals to ensure sales personnel are motivated to work in the best interest of providers. In the end, suppliers and their personnel will be rewarded with
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greater business and revenue security, while providers experience the product performance needed to thwart untoward healthcare outcomes.
As the world hopefully begins to tran- sition to a new era of healthcare post COVID-19, supply chains and all actors involved will need to have the agility to adapt to a new normal. The recommen- dations here should provide some insight into the challenges and opportunities that remain for suppliers as they take the lead to work with health systems to establish value-based procurement frameworks with mutual objectives for long-term win-win relations that yield high-quality outcomes and sustainable cost-effective care for all citizens. HPN
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3. Cutler, D. (2020, April). How will COVID-19 affect the health care economy?. In JAMA Health Forum (Vol. 1, No. 4, pp. e200419-e200419). American Medical Association.
4. McNamara, D. (2021, April). About 1 in 5 Clinicians Considers Quitting Due to Pandemic: Survey. Medscape Medical News.
5. Vivian Health. (2021, May). One-Year In: What’s Next for America’s Healthcare Workers. Retrieved at
https://www.vivian. com/community/announcements/one-year-in-whats-next-for- americas-healthcare-workers/
6. Xu, T., Hutfless, S. M., Cooper, M. A., Zhou, M., Massie, A. B., & Makary, M. A. (2015). Hospital cost implications of increased use of minimally invasive surgery. JAMA Surgery, 150(5), 489- 490.
7. Dyer, B. (2021). How to establish healthier vendor relation- ships during and after the pandemic. Healthcare Purchasing News, February 16. Retrieved at
https://www.hpnonline.com/ sourcing-logistics/blog/21210429/how-to-establish-healthier- vendor-relationships-during-and-after-the-pandemic.
8. Alicke, K., Gupta, R., and Trautwein, V. (2020). Resetting sup- ply chains for the next normal. July 21. Retrieved at https://www.
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Brian Mangan serves as Director, Brian Mangan Associates, Liverpool, UK, Fellow of the Chartered Institute of Procurement and Supply and Executive Board Member for the newly formed European Association of Value-Based Health Care.
Randy V. Bradley, Ph.D., serves as Associate Professor of Information Systems and Supply Chain Management, University of Tennessee, and Executive Vice President, Digital Transformation for Life Sciences, Bio Supply Management Alliance, Knoxville, TN. Bradley earned the 2020 Dean S. Ammer Award for Healthcare Supply Chain Performance Excellence by Bellwether League Foundation’s Hall of Fame for Healthcare Supply Chain Leadership.
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