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The latest episode in the OpenMarkets Healthcare Broadcast Series offered supply chain leaders a refresher course on negotiation best practices, reviewing seven tactics to keep in mind when procuring medical equipment. John Kott, CMRP, and Scott Terry, supply chain management executives at Norman Regional Health System in south-central Oklahoma, shared their negotiation experiences. A recording of the broadcast, titled “Best Practices in Equipment Negotiation,” is now available for viewing here.
Kott is the director of the supply chain function across Norman Regional Health’s multi-campus system. Terry is the capital equipment purchasing manager, responsible for executing the capital strategy and negotiating with supplier partners daily. They were joined by Tom Derrick, co-founder and senior vice president at OpenMarkets.
Before jumping into negotiating strategies, the three discussed the multiple points of pain on both sides of a healthcare equipment transaction – for providers and suppliers – all of which must be addressed to lower equipment pricing.
“We’re on a journey right now,” said Kott, the Director of Supply Chain Management at Norman. “What I mean by that is, we’re changing our approach to capital equipment purchasing, with OpenMarkets’ help. We’re moving toward being more strategic when we buy. We want to look to the future.”
Since effective equipment negotiation is one way to buy more strategically, conversation turned to the seven key negotiating strategies.
Bundling equipment purchases was the third negotiation strategy discussed, and Kott said that an effective use of this strategy was one reason Norman Regional Health joined OpenMarkets.
“We have two strategic objectives as it relates to capital equipment,” he said, “First, it’s automating requisitioning and capital budgeting. With OpenMarkets, we can be more strategic in our coordination with vendors. Instead of buying one and two orders here and there, we’ll bundle them together to reduce costs and enhance alignment.”
“Our data says 15% is saved by negotiating in bundles, so this may be the single best-negotiating strategy out there,” Derrick said.
Other negotiation strategies discussed in the broadcast included:
• Anchoring: The practice by which one of the negotiating partners will anchor the final price by being the first to issue a price. This first price is artificially high when issued by the seller, or artificially low when issued by the buyer. Within the healthcare equipment market, a supplier who provides an initial equipment quote to a clinical team at list price is deploying Anchoring. When the price eventually drops by 30, 40 or 50%, the clinicians are thrilled by the big discount. Proactive supply chain teams and key suppliers will work to eliminate the rounds of negotiation needed to get to this level of discounting.
• BATNA - Best Alternative To a Negotiated Agreement: Kott explained that for providers like Norman, understanding BATNA helps his team better prepare for supplier conversation. If the clinician team is open to more than one supplier, then a strong BATNA is available and your negotiating position is improved. Establishing this early in the equipment procurement process allows a provider to present choices back to the clinical teams, and makes it possible to push a bit harder and concede less. If BATNA is weak, it is better to keep that information to yourself.
• Distributive vs. Integrative Negotiations: Academic research focuses on two types of negotiations: Distributive (“fixed-pie”) and Integrative (“expand the pie,” or “win-win”). Kott: “our journey to improve the way we buy equipment will allow us to be more proactive, and to establish more win-win scenarios with supplier partners.”
• The “Good Guy” Discount: In B2C negotiations, research shows that you should always ask for a discount. Kott, Terry and Derrick discussed if this can work in the healthcare supply chain.
• Multi-party negotiations: Sometimes a trusted third party can finalize a deal faster and create a better outcome for both parties. “Hospitals often use OpenMarkets data to make sure they’re getting a fair price, and that’s a win-win,” said Derrick, “the hospital gets validation they’ve created a good deal, and suppliers get to ‘yes’ faster.”
• Proper Preparation: Identify suppliers and steps to vet them, evaluate market shares, and plan the negotiation strategies that may work.
In closing, Derrick pointed out there are more than 2,000 different equipment suppliers in healthcare, making negotiating for capital equipment an extremely complex process. “Even if your organization is not yet in a position to take the full journey to reinvent your capital process,” Derrick said, “I encourage you to try out the OpenMarkets Exchange. Better collaboration and more transparency between providers and suppliers
Kott’s team at Norman Regional Health is taking advantage of those tools. “We’re not unique here,” he said. “Healthcare resources are finite. And if we don’t explicitly manage them, we will increase disparities in care. We’ve got to get better at identifying resource protocols that provide the value we
and eliminate the waste. We have to end the “try everything”
and discontinue actions that don’t improve outcomes but do increase cost. That’s the journey we’re starting, and we’ll get there in less than two years.”
The OpenMarkets Healthcare Supply Chain Broadcast Series is aimed at educating healthcare providers and equipment suppliers on how new processes and intelligence can be utilized to save valuable time, better collaborate with
and maximize efficiency.