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Featuring Matt Wood, manager of freight programs at Mayo Clinic, the October installment of the OpenMarkets Healthcare Broadcast Series tackled a topic that represents a significant cost within the $30 billion spent by U.S. healthcare providers on medical equipment each year: The healthcare industry spends about $1.44 billion annually – 4% of the total spend – just to ship equipment from suppliers to providers.
Wood, Manager of Supply Chain Solutions Developed by Mayo Clinic (SCS), has been with Mayo Clinic for five years, where he leads Freight Management Solutions and created the SCS team. Prior to joining Mayo Clinic, he spent 16 years in transportation, logistics, and airline cargo management (Delta Airlines). Joining him for broadcast was Tom Derrick, co-founder and senior vice president at OpenMarkets. A recording of the broadcast, titled ““Negotiating Freight for Capital Equipment Purchases,” is now available for viewing here.
“Over the last several years, all of us in healthcare have been looking for more and more transparency as our costs get tighter and our margins get tighter,” Wood explained. “We’re wanting to make sure that we’ve got win-win agreements with suppliers, and that rolls over to our freight agreements as well.” Wood shared a variety of insights into Mayo Clinic’s supply chain and capital purchase strategy, and demonstrated how controlling freight costs creates cost savings and contract/price transparency.
One reason Wood offers for discussing price transparency and freight costs together stems from the historical way freight and transportation costs were handled in the industry – or not handled. As recently as the early 2000s, he said, these costs were frequently negotiated away due to a lack of understanding. Mayo Clinic pioneered in this area because, as Wood explained, “freight is never free.”
He shared four goals that guide Mayo Clinic’s freight strategy for capital purchases:
- Educate buyers about freight and freight cost
- Use a freight cost strategy to gain true item cost visibility
- Limit liability
- Ensure freight costs are tied back to the capital expense
Wood discussed steps taken at Mayo Clinic to pursue each of these goals. To educate buyers, for example, he described three rules created to guide Mayo’s actions regarding freight, and shared an intranet page provided by his department as a resource for buyer information. “Our buyers are very receptive to learning more about freight costs,” he said, “because actually, freight cost is one of the simpler items to negotiate.”
In addition, Wood suggested buyers watch out for the two worst freight terms to allow: 1. Freight is included in the price, and 2. A Pre-Pay & Add (PPA) provision with no specific freight terms given. Interested buyers and suppliers can download the broadcast recording here to hear Wood’s thoughts on the other three freight goals, and additional strategies the health system applies to achieve them.
One more such strategy, working against the goal of getting to true item cost transparency: Wood said Mayo Clinic requires suppliers complete a standard quote for each equipment item, which includes a line on which they must call out freight cost.
“That’s an inspiring thing you’re doing, but you must admit it’s easier with the Mayo Clinic name behind you,” Derrick pointed out, adding that for making such demands is harder for smaller health systems. Derrick said using OpenMarkets’ resources can help smaller systems access similar information without the clout of the Mayo Clinic. “Here at OpenMarkets, we do hundreds of transactions a week and we see a desire for open dialog between equipment suppliers and buyers,” Derrick continued. “In the interest of establishing trust, I’d suggest buyers take heed to Mayo Clinic’s strategies and begin discussing these terms early in the process versus waiting until the last minute when it can be more difficult for the supplier to collaborate on freight options.”
Wood agreed, adding that Mayo Clinic’s freight management team finds better luck with some strategies with the suppliers they use on a more regular basis than with one-time purchases.
In closing the discussion, Wood shared a key stat: “The freight management program at Mayo Clinic has reduced our freight expense by $4 million annually, which allows more money to be used in patient research and to support our primary value at Mayo Clinic: the needs of the patient come first.”
Derrick reiterated that value. “In healthcare there’s no mission without margin,” he said, reminding listeners that OpenMarkets views the goal of buyer-supplier partnerships as improving the efficiency of the capital procurement process, in order to deliver medical equipment to the hands of doctors and nurses to drive better care.
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 customers, and maximize efficiency. Click here to sign up future broadcasts.