Vera Tilson, associate professor of operations management at the University of Rochester, made a visit to The Boeing Center to present her research on the impact of custom contracting and the infomediary roles of healthcare GPOs to our OMM students and faculty.
For more research, connect with The Boeing Center on:
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Group purchasing involves combining the purchasing power of multiple organizations to obtain lower prices on supplies and equipment. It began in the early 20th century and grew significantly with the establishment of Medicare and Medicaid in the US. The main objectives are cost savings through bulk discounts, ensuring quality and supply of items, and standardizing purchases. There are various types of purchasing groups. Studies estimate that group purchasing saves the US healthcare industry $36 billion annually or 10-18% of total supply spending through lower prices negotiated by purchasing cooperatives. The largest challenges are potential conflicts of interest that need transparency.
This document summarizes supply chain management practices in the healthcare industry. It discusses that healthcare supply chains involve various stakeholders like producers, purchasers, and providers. It also outlines different modes of integration in healthcare supply chains like integration of processes, information, planning, and markets. Some best practices discussed are use of RFID technology, inventory management, procurement processes, information sharing, and revenue cycle management systems. The conclusion states that while improvements have been made, areas like inventory control, procurement, and information sharing require more focus from managers.
This is the powerpoint version of the content from my latest article posted on LinkedIn: https://www.linkedin.com/pulse/discussion-pricing-concepts-easy-recipe-healthcare-marketers-tangun
The document discusses the wellness industry in India, focusing on hospitals. It provides statistics on the size of the wellness industry globally and in India. It then summarizes information about two major hospital chains in India - Fortis Healthcare and Apollo Hospitals - including their founding, locations, services offered, revenues, number of hospitals and beds. Charts show the revenue breakdown by sector and department for each hospital. The document also discusses the companies' pricing, promotion, people and processes. It analyzes the strengths, weaknesses, opportunities and threats for the two hospital chains using SWOT analysis.
Healthcare logistics for service improvement and a new understanding of patient flow. Presented by Delia Dent, CSC, at HINZ 2014, 11 November 2014, 11.37am, Marlborough Room
Group purchasing involves combining the purchasing power of multiple organizations to obtain lower prices on supplies and equipment. It began in the early 20th century and grew significantly with the establishment of Medicare and Medicaid in the US. The main objectives are cost savings through bulk discounts, ensuring quality and supply of items, and standardizing purchases. There are various types of purchasing groups. Studies estimate that group purchasing saves the US healthcare industry $36 billion annually or 10-18% of total supply spending through lower prices negotiated by purchasing cooperatives. The largest challenges are potential conflicts of interest that need transparency.
This document summarizes supply chain management practices in the healthcare industry. It discusses that healthcare supply chains involve various stakeholders like producers, purchasers, and providers. It also outlines different modes of integration in healthcare supply chains like integration of processes, information, planning, and markets. Some best practices discussed are use of RFID technology, inventory management, procurement processes, information sharing, and revenue cycle management systems. The conclusion states that while improvements have been made, areas like inventory control, procurement, and information sharing require more focus from managers.
This is the powerpoint version of the content from my latest article posted on LinkedIn: https://www.linkedin.com/pulse/discussion-pricing-concepts-easy-recipe-healthcare-marketers-tangun
The document discusses the wellness industry in India, focusing on hospitals. It provides statistics on the size of the wellness industry globally and in India. It then summarizes information about two major hospital chains in India - Fortis Healthcare and Apollo Hospitals - including their founding, locations, services offered, revenues, number of hospitals and beds. Charts show the revenue breakdown by sector and department for each hospital. The document also discusses the companies' pricing, promotion, people and processes. It analyzes the strengths, weaknesses, opportunities and threats for the two hospital chains using SWOT analysis.
Healthcare logistics for service improvement and a new understanding of patient flow. Presented by Delia Dent, CSC, at HINZ 2014, 11 November 2014, 11.37am, Marlborough Room
The document discusses purchase management in hospitals. It covers what purchase management is, the purchase cycle process, features of purchase management, and principles of purchase management. It notes that purchase management directs the flow of goods and services in a company. The purchase cycle involves recognizing a need, specifying the need, determining a supplier, establishing price and terms, creating a purchase order, delivering the order, expediting the order, receiving and inspecting the order, approving and paying for the order, and maintaining records. Purchase management in hospitals is complex due to the need for products to always be available for patient care while controlling costs and inventory. Hospitals often work with distributors to manage supplier relationships and deliver goods.
Medical Claims Management is a versatile solution for your practice and medical claims. MCM helps every provider and practice to set-up its entire practice management system. Our passion is to serve all kind of healthcare provider regardless of the size and specialties. Here, we provide the best paper presentation for Medical Claims Management.
A Hospital is a highly challenging work place. There are numerous bottlenecks that deteriorates the productivity & efficiency of the Healthcare services delivered.
Brand reputation of a Hospital depends on how quick they resolve the issues raised without compensating the quality and patient satisfaction. Spontaneity to untangle any situation is possible only with a strong “Hospital Operations team”. Operations management team is responsible for managing all operational process of the Hospital which includes all clinical & non-clinical departments to have a smooth working environment.
The document provides information about the Indian healthcare market, diagnostic industry in India, Biswayan Diagnostic Center (BDC), and suggestions for improving BDC's operations. It notes that the diagnostic equipment market in India is large and growing, and BDC aims to provide quality diagnostic services. It analyzes BDC's suppliers, procurement processes, use of IT, and challenges. Suggestions for BDC include investing more in IT, improving processes through documentation and standardization, and revising supplier selection criteria.
This document discusses medical equipment planning and management. It outlines the key steps in the medical equipment planning cycle including planning, assessment, acquisition, and disposition. Effective planning is important to determine equipment needs, prioritize replacements, and contain costs. The document also discusses considerations for clinical effectiveness, cost of ownership, strategic direction, and user perceptions when planning equipment. Maintaining an up-to-date inventory is important for planning. The full lifecycle from installation to decommissioning is also addressed.
PURCHASING PROCEDURES, E-PROCUREMENT, AND SYSTEM CONTRACTING pter 007 instru...Zamri Yahya
The chapter discusses purchasing procedures, e-purchasing, and systems contracting. It identifies the typical steps in the conventional purchasing cycle as requisitioning materials, determining suppliers, issuing purchase orders, expediting deliveries, receiving materials, and processing invoices. E-purchasing can reduce costs for indirect materials like office supplies through electronic ordering and reverse auctions. However, direct materials purchasing requires close supplier relationships not suited for e-procurement. Electronic data interchange (EDI) allows electronic transmission of orders and invoices but implementation requires overcoming resistance to change.
Healthcare Billing and Reimbursement: Starting from ScratchDale Sanders
The healthcare billing environment in the US is a disaster. It creates huge waste in care and cost. As presented at the Cayman Islands International Healthcare Conference in October 2010, this slide deck suggests what the billing system might look like, if we could start over.
Inventory is raw materials, parts, work-in-process, and finished goods held in the supply chain. Managing inventory well can reduce costs and increase profits through sales growth and cost reductions. Companies must consider factors like demand, costs of holding and ordering inventory, price discounts, and safety stock when determining optimal inventory levels. The economic order quantity (EOQ) model balances ordering and holding costs to determine the most cost-effective order size, while reorder points and safety stock help avoid stockouts by ensuring sufficient inventory levels.
The document discusses the importance of medical equipment planning and procurement for hospitals. It notes that equipment accounts for 30-40% of project costs and must meet regulatory and technical standards. Hospital consultants can help by assessing technology needs, listing equipment requirements, planning timelines, evaluating site needs, obtaining quotes, conducting techno-commercial analyses, shortlisting vendors, negotiating contracts, and providing training. Systematic planning and procurement results in intelligent funding use, optimized patient care, cost reductions, and increased hospital performance and revenue.
The document discusses a case study conducted at Apollo Hospital in Ahmedabad on the Third Party Administrator (TPA) process. It aims to understand the admission and discharge processes for TPA patients and identify reasons for delays. The study found that discharging a TPA patient takes 4-6 hours on average. Key causes of delay included incomplete discharge summaries, billing issues, consultant availability, and delayed approvals from the TPA. Recommendations to address the delays included improving pre-authorization forms, planning admissions and discharges, adding more staff to the TPA desk, and educating patients on the TPA process.
What is Procurement Methods and Process ITFCWalter Deagle
Know what is procurement, process, and different methods to ease the procurement cycle. And tips for procurement management and know about the other terms related to the procurement.
The document discusses purchasing/procurement management and outlines key concepts. It begins with definitions of purchasing and procurement and their role in supply chain management. It then covers traditional roles and how they have evolved, highlighting how procurement now supports various functions across the organization. The document also outlines the supplier selection process and criteria for evaluating suppliers. It provides an overview of the typical purchase order process flow and documents involved. Finally, it discusses supplier resource management and factors to consider when managing supplier relationships.
The document discusses the benefits and risks of international procurement. It begins by defining procurement and outlining the research objectives, which are to examine the benefits and risks of international procurement and determine if issues exist globally. Key benefits identified are lower costs due to differences in currency exchange rates and labor costs between countries. However, risks include fraud, poor quality of goods/services, and difficulties managing distant suppliers. The document provides examples and sources to support the benefits and risks discussed.
In this, we will read about the Supply Chain Management in Healthcare
The following contents will be described briefly:-
1. What is a supply chain?
2. The process of Views of Supply Chain
3. Objectives of Supply Chain Management
4. Supply Chain Decisions
5. Benefits of Supply Chain
6. Integrated Health Supply Chains
7. New Trends In Healthcare Supply Chain
8. Potential Risks to an Organization and Supply Chain
9. Strategies to Improve Healthcare Supply Chain Management
I have discussed certain aspects of costing in relation to achieving surplus for a hospital. The presentation gives you an idea in to how to look activities of a hospital and save costs.
This presentation covers the fundamentals of medical billing, coding, and reimbursement by explaining how all of these components work together. Emphasis is placed on the practical application of the latest industry knowledge and standards, with the goal of helping those who work with medical claims and claims data stay ahead of the game.
Purchasing and procurement in Material managementKaustubh Vartak
Purchasing is a subset of procurement. Purchasing generally refers simply to buying goods or services. Purchasing often includes receiving and payment as well.
Sourcing and Materials Management Presentationjeremymcarter
This document discusses sourcing stages and provides examples of their application. It describes the typical stages in a sourcing process: discovery, evaluation, selection, development and management. It then gives two examples - one detailing challenges faced by the recreational boating industry around forecasting demand and inventory management, and another outlining issues for the logistics company CEVA in securing reliable air freight capacity for shipments to China.
Readmissions are a heightened focus under the Affordable Care Act. Initiatives are in place to reduce hospital admission through improving transition in care. During this course the speaker will discuss CMS quality initiatives, care transition, projects and barriers. This presentation reviews the key elements to tackling Avoidable Readmissions.
1. Learn to summarize the CMS quality initiative for healthcare reform related to hospital readmissions
2. Learn to identify underlying causes and barriers related to readmissions
3. Learn to state current CMS research projects and pilot programs
4. Learn to identify hospital and SNF strategies for collaboration
Blockchain's Smart Contracts: Driving the Next Wave of Innovation Across Manu...Cognizant
Blockchain technology has the potential to fundamentally change manufacturing supply chains by enabling trusted relationships and transactions between partners without intermediaries. Smart contracts on blockchain platforms can automate negotiations and transactions, reducing costs while increasing efficiency and agility. Early applications include smart contracts that automate procurement transactions between suppliers and buyers, and smart equipment that can automatically order replenishments. Widespread use of blockchain in manufacturing will require overcoming challenges of integrating new decentralized technologies with existing systems and evaluating technology maturity.
5 GPO Myths...Debunked (Or: What You Always Wanted to Know But Were Afraid to...Corporate United
Group purchasing organizations (GPOs) are member-based organizations, but with as many misconceptions as there are about them, you’d think they were something like the Illuminati or the Freemasons.
Are they really a good option for achieving savings on your indirect spend categories? Are you getting the whole picture when you work with a GPO?
Here are five common myths about GPOs and the truth behind them.
The document discusses purchase management in hospitals. It covers what purchase management is, the purchase cycle process, features of purchase management, and principles of purchase management. It notes that purchase management directs the flow of goods and services in a company. The purchase cycle involves recognizing a need, specifying the need, determining a supplier, establishing price and terms, creating a purchase order, delivering the order, expediting the order, receiving and inspecting the order, approving and paying for the order, and maintaining records. Purchase management in hospitals is complex due to the need for products to always be available for patient care while controlling costs and inventory. Hospitals often work with distributors to manage supplier relationships and deliver goods.
Medical Claims Management is a versatile solution for your practice and medical claims. MCM helps every provider and practice to set-up its entire practice management system. Our passion is to serve all kind of healthcare provider regardless of the size and specialties. Here, we provide the best paper presentation for Medical Claims Management.
A Hospital is a highly challenging work place. There are numerous bottlenecks that deteriorates the productivity & efficiency of the Healthcare services delivered.
Brand reputation of a Hospital depends on how quick they resolve the issues raised without compensating the quality and patient satisfaction. Spontaneity to untangle any situation is possible only with a strong “Hospital Operations team”. Operations management team is responsible for managing all operational process of the Hospital which includes all clinical & non-clinical departments to have a smooth working environment.
The document provides information about the Indian healthcare market, diagnostic industry in India, Biswayan Diagnostic Center (BDC), and suggestions for improving BDC's operations. It notes that the diagnostic equipment market in India is large and growing, and BDC aims to provide quality diagnostic services. It analyzes BDC's suppliers, procurement processes, use of IT, and challenges. Suggestions for BDC include investing more in IT, improving processes through documentation and standardization, and revising supplier selection criteria.
This document discusses medical equipment planning and management. It outlines the key steps in the medical equipment planning cycle including planning, assessment, acquisition, and disposition. Effective planning is important to determine equipment needs, prioritize replacements, and contain costs. The document also discusses considerations for clinical effectiveness, cost of ownership, strategic direction, and user perceptions when planning equipment. Maintaining an up-to-date inventory is important for planning. The full lifecycle from installation to decommissioning is also addressed.
PURCHASING PROCEDURES, E-PROCUREMENT, AND SYSTEM CONTRACTING pter 007 instru...Zamri Yahya
The chapter discusses purchasing procedures, e-purchasing, and systems contracting. It identifies the typical steps in the conventional purchasing cycle as requisitioning materials, determining suppliers, issuing purchase orders, expediting deliveries, receiving materials, and processing invoices. E-purchasing can reduce costs for indirect materials like office supplies through electronic ordering and reverse auctions. However, direct materials purchasing requires close supplier relationships not suited for e-procurement. Electronic data interchange (EDI) allows electronic transmission of orders and invoices but implementation requires overcoming resistance to change.
Healthcare Billing and Reimbursement: Starting from ScratchDale Sanders
The healthcare billing environment in the US is a disaster. It creates huge waste in care and cost. As presented at the Cayman Islands International Healthcare Conference in October 2010, this slide deck suggests what the billing system might look like, if we could start over.
Inventory is raw materials, parts, work-in-process, and finished goods held in the supply chain. Managing inventory well can reduce costs and increase profits through sales growth and cost reductions. Companies must consider factors like demand, costs of holding and ordering inventory, price discounts, and safety stock when determining optimal inventory levels. The economic order quantity (EOQ) model balances ordering and holding costs to determine the most cost-effective order size, while reorder points and safety stock help avoid stockouts by ensuring sufficient inventory levels.
The document discusses the importance of medical equipment planning and procurement for hospitals. It notes that equipment accounts for 30-40% of project costs and must meet regulatory and technical standards. Hospital consultants can help by assessing technology needs, listing equipment requirements, planning timelines, evaluating site needs, obtaining quotes, conducting techno-commercial analyses, shortlisting vendors, negotiating contracts, and providing training. Systematic planning and procurement results in intelligent funding use, optimized patient care, cost reductions, and increased hospital performance and revenue.
The document discusses a case study conducted at Apollo Hospital in Ahmedabad on the Third Party Administrator (TPA) process. It aims to understand the admission and discharge processes for TPA patients and identify reasons for delays. The study found that discharging a TPA patient takes 4-6 hours on average. Key causes of delay included incomplete discharge summaries, billing issues, consultant availability, and delayed approvals from the TPA. Recommendations to address the delays included improving pre-authorization forms, planning admissions and discharges, adding more staff to the TPA desk, and educating patients on the TPA process.
What is Procurement Methods and Process ITFCWalter Deagle
Know what is procurement, process, and different methods to ease the procurement cycle. And tips for procurement management and know about the other terms related to the procurement.
The document discusses purchasing/procurement management and outlines key concepts. It begins with definitions of purchasing and procurement and their role in supply chain management. It then covers traditional roles and how they have evolved, highlighting how procurement now supports various functions across the organization. The document also outlines the supplier selection process and criteria for evaluating suppliers. It provides an overview of the typical purchase order process flow and documents involved. Finally, it discusses supplier resource management and factors to consider when managing supplier relationships.
The document discusses the benefits and risks of international procurement. It begins by defining procurement and outlining the research objectives, which are to examine the benefits and risks of international procurement and determine if issues exist globally. Key benefits identified are lower costs due to differences in currency exchange rates and labor costs between countries. However, risks include fraud, poor quality of goods/services, and difficulties managing distant suppliers. The document provides examples and sources to support the benefits and risks discussed.
In this, we will read about the Supply Chain Management in Healthcare
The following contents will be described briefly:-
1. What is a supply chain?
2. The process of Views of Supply Chain
3. Objectives of Supply Chain Management
4. Supply Chain Decisions
5. Benefits of Supply Chain
6. Integrated Health Supply Chains
7. New Trends In Healthcare Supply Chain
8. Potential Risks to an Organization and Supply Chain
9. Strategies to Improve Healthcare Supply Chain Management
I have discussed certain aspects of costing in relation to achieving surplus for a hospital. The presentation gives you an idea in to how to look activities of a hospital and save costs.
This presentation covers the fundamentals of medical billing, coding, and reimbursement by explaining how all of these components work together. Emphasis is placed on the practical application of the latest industry knowledge and standards, with the goal of helping those who work with medical claims and claims data stay ahead of the game.
Purchasing and procurement in Material managementKaustubh Vartak
Purchasing is a subset of procurement. Purchasing generally refers simply to buying goods or services. Purchasing often includes receiving and payment as well.
Sourcing and Materials Management Presentationjeremymcarter
This document discusses sourcing stages and provides examples of their application. It describes the typical stages in a sourcing process: discovery, evaluation, selection, development and management. It then gives two examples - one detailing challenges faced by the recreational boating industry around forecasting demand and inventory management, and another outlining issues for the logistics company CEVA in securing reliable air freight capacity for shipments to China.
Readmissions are a heightened focus under the Affordable Care Act. Initiatives are in place to reduce hospital admission through improving transition in care. During this course the speaker will discuss CMS quality initiatives, care transition, projects and barriers. This presentation reviews the key elements to tackling Avoidable Readmissions.
1. Learn to summarize the CMS quality initiative for healthcare reform related to hospital readmissions
2. Learn to identify underlying causes and barriers related to readmissions
3. Learn to state current CMS research projects and pilot programs
4. Learn to identify hospital and SNF strategies for collaboration
Blockchain's Smart Contracts: Driving the Next Wave of Innovation Across Manu...Cognizant
Blockchain technology has the potential to fundamentally change manufacturing supply chains by enabling trusted relationships and transactions between partners without intermediaries. Smart contracts on blockchain platforms can automate negotiations and transactions, reducing costs while increasing efficiency and agility. Early applications include smart contracts that automate procurement transactions between suppliers and buyers, and smart equipment that can automatically order replenishments. Widespread use of blockchain in manufacturing will require overcoming challenges of integrating new decentralized technologies with existing systems and evaluating technology maturity.
5 GPO Myths...Debunked (Or: What You Always Wanted to Know But Were Afraid to...Corporate United
Group purchasing organizations (GPOs) are member-based organizations, but with as many misconceptions as there are about them, you’d think they were something like the Illuminati or the Freemasons.
Are they really a good option for achieving savings on your indirect spend categories? Are you getting the whole picture when you work with a GPO?
Here are five common myths about GPOs and the truth behind them.
Brent Johnson, VP of Supply Chain at Intermountain Healthcare, gave a presentation on supply chain best practices in healthcare. He discussed Intermountain's supply chain transformation efforts that have saved over $130 million through strategic sourcing, centralization, and performance management. He outlined 12 fundamental best practices of supply chain management, including developing a strategy, strategic sourcing, managing total cost of ownership, and establishing key supplier alliances. The presentation provided examples of how these practices have been applied within Intermountain to improve outcomes and lower costs.
The US spends more on healthcare than any other country, reaching $2.7 trillion in 2011 or $8,680 per person, while UK spending was 142.8 billion pounds or 9.4% of GDP. In the US, most receive insurance through employers or private purchase, while 31% use public insurance and 16% are uninsured. In contrast, UK citizens receive universal public healthcare through taxation. While the US spends more, it has lower life expectancy and poorer health outcomes than other wealthy nations, including the UK which was rated as having the most efficient and cost-effective system. The data shows clear differences between the privately-run US system and the government-run UK system.
The document summarizes key aspects of the U.S. healthcare system, including how it is funded, how providers are paid, factors driving rising costs, and challenges around sustainability. It addresses these topics through discussing Medicare/Medicaid payment models, employer-sponsored insurance, measures of quality, and factors influencing costs such as administrative overhead and intensity of services provided. The document uses questions to test the reader's understanding of important healthcare concepts like DRGs, preferred provider organizations, and drivers of "good" practice patterns.
The document discusses issues with the current US healthcare system and proposes solutions. It notes that the system incentivizes overuse of services due to fee-for-service payments. It also discusses collecting standardized data on procedures and prices to enable comparisons and drive costs down. The document proposes building an economic model and running scenarios to optimize strategic choices and improve quality and processes.
The document provides an overview of the complex U.S. healthcare system, including its decentralized market-based structure compared to other countries' centralized systems. It discusses key players like doctors, hospitals, insurers, and governments. It also covers major public programs like Medicare and Medicaid, as well as private insurance concepts like health plans, coding, and reimbursement structures including capitation and fee-for-service.
Us health care system final presentation.Wendi Lee
Wendi Evans is pursuing a degree in health care administration. This presentation will provide an overview of the history and current state of the US healthcare system, including defining key terms, outlining milestones from 1900 to present, comparing the US system to Canada's, and discussing reforms and stakeholders. The summary will discuss the establishment of organized medicine in the US in the 1900s, the passage of Medicare and Medicaid in the 1960s, the implementation of the Affordable Care Act in 2010, and reforms aimed at improving quality and lowering costs.
The document summarizes the major characteristics of the US healthcare delivery system. It notes that the US system has no central governing agency and little integration between parts of the system. It is technology-driven, focuses on acute care, and is high in costs but unequal in access, resulting in average health outcomes. The US relies more on private sector involvement compared to other developed countries where government plays a larger role.
An introductory overview of healthcare across South East Asia and a look at the growing healthcare trends across the region.
Download the presentation by clicking the "Save this presentation" icon above.
Prof. Carol Propperin esitys VATT-päivässä 1.11.2016.
Professori Carol Propper on taloustieteen professori Imperial College London -yliopistossa Lontoossa, Iso-Britanniassa. Professori Propperin tutkimus keskittyy kannustin- ja kilpailukysymyksiin terveydenhuoltomarkkinoilla sekä yleisemmin kannustimien suunnitteluun ja vaikutuksiin julkisella sektorilla sekä julkisen ja yksityisen markkinoiden rajapinnalla. Hän on kuuluisa erityisesti tutkimuksistaan, joissa on tarkasteltu kilpailun ja valinnanvapautta lisäävien uudistusten vaikutuksia terveydenhuollon toimintaan Iso-Britanniassa.
Medical devices equipped for the futureBrand Acumen
The document discusses disruptive changes underway in the medical devices industry that will transform it over the next 5 years. It identifies 5 major disruptors: 1) a power shift to payers and providers who are focusing more on cost and value-based evidence, 2) heightened regulatory scrutiny that is increasing compliance costs, 3) unclear sources of innovation as R&D spending yields diminishing returns, 4) new healthcare delivery models that are shifting care settings out of hospitals, and 5) a need to serve lower socioeconomic classes in developing markets. The disruptors threaten $34 billion in industry profits by 2020 but taking appropriate measures could help maintain revenue growth and offset margin declines, preserving significant value for medical device companies.
Historically, the medical device industry has been highly attractive and relatively stable. As a consequence, established players have been able to compete successfully across the device spectrum, applying common business models and processes without much need for differentiation.
The future, however, is very different as disruptive change is underway. Companies will need to look at new segments and offer end-to-end solutions to secure additional revenue and maintain their profit margins.
How High Will They Go? Managing Rising Drug Prices in a Changing Healthcare E...CompleteRx
In 2016, spending on prescription drugs is expected to reach $500 billion. So, how high will they really go? That is a common question asked with drug prices as recent headlines have exploited drug pricing schemes and how the pharmaceutical industry is handling rising prices. This webinar discusses how hospitals and health systems can prepare for and manage rising drug costs, ensure patient care and positively impact the bottom line.
This document outlines key concepts related to healthcare supply chain and inventory management. It discusses the typical players in the supply chain including manufacturers, distributors, group purchasing organizations, and e-distributors. It also describes how materials flow through the supply chain and some contemporary issues in medical inventory management like just-in-time systems and single vs multiple vendors. Key aspects of effective inventory management are identified such as inventory accounting systems, lead times, costs including holding, ordering and shortage costs, and the economic order quantity model.
1) The study assessed surgeon identification with implant manufacturers, hospitals, and other stakeholders to understand who has more influence over orthopedic surgeons.
2) Surveys of 202 orthopedic surgeons found that surgeon tenure with their primary implant vendor was the strongest factor in models of surgeon identification.
3) Surgeons exhibited strong brand loyalty to their primary vendors and often used the same vendors they had during their residency training.
Prof. Martin Gaynorin esitys VATT-päivässä 1.11.2016
Gaynor on professori Carnegie Mellon yliopistossa, tutkija Britannian johtavassa, julkisen sektorin reformeihin keskittyvässä tutkimuslaitoksessa (Bristolin yliopiston Centre for Market and Public Organisation) ja jäsenenä NHS:n kilpailuasioita käsittelevässä asiantuntijapaneelissa.
Gaynor on tehnyt vaikutusvaltaisia tutkimuksia ja kirjoittanut laajasti terveydenhuoltomarkkinoiden toiminnasta, kilpailusta, kilpailua rajoittavista tekijöistä, tuottajien saamista korvauksista sekä Yhdysvalloissa että Briteissä.
Learn about reference pricing as a purchaser in response to the high and rising pharmaceutical sales and innovative strategies for managing specialty drugs.
Regional payers and clinical commissioning groups (CCGs) are the key decision makers in the tendering process for biosimilars. They are increasingly questioning the value of pharma-funded homecare packages and looking for transparency in costs to see if alternative provisions may be more cost-effective. The review process for biosimilars is straightforward, as they are assumed to have similar effectiveness to the approved biologic at a lower price. Tendering will be driven primarily by cost, with other factors like homecare packages becoming less influential. Pharmacists are an important contact for drug companies to discuss potential homecare packages early in the process.
Regional payers and clinical commissioning groups (CCGs) are the key decision makers in the tendering process for biosimilars. They are increasingly questioning the value of pharma-funded homecare packages and looking for transparency in costs to see if alternative provisions may be more cost-effective. The review process for biosimilars is straightforward, as they are assumed to have similar effectiveness to the approved biologic at a lower price. Tendering will be driven primarily by cost, with other factors like homecare packages becoming less influential. Pharmacists are an important contact for drug companies to discuss potential homecare packages early in the process.
McKinsey Sağlık Tedarik Zinciriyle, FMCG Tedarik Zinciri karşılaştırıyor. Sağlık Tedarik Zincirindeki iyileştirme fırsatına ve toplumsal boyutuna dikkat çekiyor.
The Healthcare Supply Chain1. Outline and explai.docxoreo10
The Healthcare Supply Chain
1. Outline and explain the concept of a supply chain.
2. How is a healthcare supply chain different from many other types of supply chains?
3. Discuss and give examples of categories of items involved in and functions provided by the healthcare supply chain.
4. Relate discuss and provide an example where the value chain integrates with healthcare supply chain operations and management.
5. Distinguish the functional areas of the value chain in the healthcare supply chain.
6. Relate the processing of cotton into a medics surgical supply item with the functional areas of the healthcare supply chain
7. Evaluate the benefits of improved healthcare supply chain operations and management in terms of a healthcare organization, patient, a community, and from the health industry standpoints.
Chapter 1:
The Healthcare Supply Chain
Learning Objectives:
Outline and explain the concept of a supply chain and supply chain management.
Discuss and give examples of categories involved in the healthcare supply chain.
Explain the concept of the Value Chain.
Distinguish the functional areas of the Value Chain in the healthcare supply chain.
‘Follow the Cotton Ball’ – Relate the processing of cotton into a medical/surgical supply item to the functional areas of the healthcare supply chain.
Consider the benefits of improved healthcare supply chain management.
Introduction
The healthcare supply chain plays a large role in the production of healthcare services.
Providing the right item, at the right time, at the right place and with quality into healthcare providers’ able hands are the focus of the supply chain.
3
Supply Chain Management (SCM)
Supply chain management is the integration of the flows of products, information, services and finances from the point of origin to the final customer.
Supply chain management is an important area of growth for healthcare organizations for several reasons; the most obvious being the cost associated with mismanagement of the supply chain.
The Supply Chain
A supply chain is an interconnected network of people and organizations that are involved in the production of products and services.
Every organization is part of a supply chain, whether they produce a product or a service.
5
Logistics
Logistics management “ is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements."
In the healthcare sector logistics is often referred to by an older name for logistics: materials management.
Materials Management
Material management in healthcare is the procurement , storage, inventory control, quality control and operational management of supplies, pharmaceuticals, equipment and other items used in the delivery of patient care or the management of the pa ...
Presentation Uncovers Trends in the Unpredictable Healthcare IndustryPYA, P.C.
With the healthcare industry in a state of flux, not much is known about what lies ahead; but trends across the industry have become apparent and are likely to stick. These trends were the subject of a presentation given by PYA Principal David McMillan at the PKF North America Healthcare Fly-In.
The document discusses procurement and warehousing of drugs and pharmaceuticals. It covers key topics like procurement process, components of an effective drug procurement policy, strategies for good procurement, methods of procurement, proper drug storage conditions and requirements, pest control measures, and expiry date management. The main points are procurement involves acquiring supplies through various purchase methods, an efficient policy has elements like essential drug lists and quality assurance, and proper storage, organization and safety protocols are vital to preserve drug quality.
The document discusses the U.S. healthcare provider supply chain from a medical device perspective. It notes that healthcare costs in the U.S. are the highest in the world and are expected to continue rising faster than inflation. The Patient Protection and Affordable Care Act is driving major changes in how entities operate by implementing value-based healthcare. The goals are to improve care and population health while reducing per capita costs. This is causing shifts in how medical device companies, healthcare providers, and payers function and do business.
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Scope Definition: Clearly outline the boundaries of the research in terms of geographical focus, target demographics (e.g., age, socio-economic status), and industry sectors (e.g., healthcare IT).
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4. Select Research Methodology and Tools
Methodological Approach: Choose appropriate research methods such as surveys, interviews, focus groups, or data analytics.
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Example of Market Research working
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Identifying Pain Points: Innovaccer surveyed healthcare providers to understand their difficulties with data integration, care coordination, and patient engagement. They found widespread frustration with siloed systems and inefficient workflows.
Competitive Analysis: Analyzed competitors offering similar solutions in healthcare analytics and interoperability. Identified gaps in comprehensive data aggregation, real-time analytics, and actionable insights.
Regulatory Compliance: Ensured their platform complied with HIPAA and other healthcare data privacy regulations. This compliance was crucial to gaining trust from healthcare providers wary of data security issues.
Customer Validation: Conducted pilot programs with several healthcare organizations to validate the platform's effectiveness in improving care outcomes and operational efficiency. Gathered feedback to refine features and user interface.
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2. There are multiple procurement challenges for US
hospitals
1. Difficult to control labor costs,
employee:patient ratios are often mandated
2. Inelastic demand (hospitals must buy clinical
supplies)
3. Supplies are 25% of all hospital expenses
2
4. 3% of line items (mostly physician preference items) are
responsible for 40% of supply expenses
5. Difficult to standardize on expensive supplies because of
diverse physician preferences and training
6. Oligopoly manufacturers of the most expensive supplies e.g.
surgical implants.
7. Hospital industry is fragmented, over 5,000 hospitals in the US
3. There are multiple procurement challenges for US
hospitals
1. Difficult to control labor costs,
employee:patient ratios are often mandated
2. Inelastic demand (hospitals must buy clinical
supplies)
3. Supplies are 25% of all hospital expenses
3
4. 3% of line items (mostly physician preference items) are
responsible for 40% of supply expenses
5. Difficult to standardize on expensive supplies because of
diverse physician preferences and training
6. Oligopoly manufacturers of the most expensive supplies e.g.
surgical implants.
7. Hospital industry is fragmented, over 5,000 hospitals in the US
4. There are multiple procurement challenges for US
hospitals
1. Difficult to control labor costs,
employee:patient ratios are often mandated
2. Inelastic demand (hospitals must buy clinical
supplies)
3. Supplies are 25% of all hospital expenses
4
4. 3% of line items (mostly physician preference items) are
responsible for 40% of supply expenses
5. Difficult to standardize on expensive supplies because of
diverse physician preferences and training
6. Oligopoly manufacturers of the most expensive supplies e.g.
surgical implants.
7. Hospital industry is fragmented, over 5,000 hospitals in the US
5. Physician Preference:
•Orthopedic Implants
•Spinal Implants
•Pacemakers
•AICDs
•Coronary Stents
•Special Procedure Devices
•Heart Valves
•Endosurgical Supplies
•Bone Products
•Perfusion Supplies
•Pacemakers
•Contrast Media
•Balloons and Wires
Physician preference items are 3% of line items
driving 40% of supply expenses
5
Hospital Supply Expenses:
Physician Preference vs. Others
by # Line Items by $$
Food products, gloves, IV solutions, gowns,
wound drainage, tubing, draping, generic drugs,
IV admin kits, disposables
8. There are multiple procurement challenges for US
hospitals
1. Difficult to control labor costs,
employee:patient ratios are often mandated
2. Inelastic demand (hospitals must buy clinical
supplies)
3. Supplies are 25% of all hospital expenses
8
4. 3% of line items (mostly physician preference items) are
responsible for 40% of supply expenses
5. Difficult to standardize on expensive supplies because of
diverse physician preferences and training
6. Oligopoly manufacturers of the most expensive supplies e.g.
surgical implants.
7. Hospital industry is fragmented, over 5,000 hospitals in the US
9. There are multiple procurement challenges for US
hospitals
1. Difficult to control labor costs,
employee:patient ratios are often mandated
2. Inelastic demand (hospitals must buy clinical
supplies)
3. Supplies are 25% of all hospital expenses
9
4. 3% of line items (mostly physician preference items) are
responsible for 40% of supply expenses
5. Difficult to standardize on expensive supplies because of
diverse physician preferences and training
6. Oligopoly manufacturers of the most expensive supplies e.g.
surgical implants.
7. Hospital industry is fragmented, over 5,000 hospitals in the US
10. The US healthcare supply chain often includes
group purchasing intermediaries
10
Oligopolistic manufacturers >5000 Fragmented buyers
Group purchasing organizations
(GPOs)
11. To obtain ‘quantity discounts’ hospitals join a GPO
which aggregates their demand
11
Oligopolistic manufacturers Fragmented buyers
GPO
12. GPO negotiates a purchasing contract with a vendor
12
Vendor Manufacturer Fragmented buyers
GPO
13. Hospitals purchase supplies from the vendor
at GPO-negotiated prices
13
Vendor Fragmented buyers
$$$
@ GPO negotiated price
products
GPO
14. To cover operating expenses, GPO collects an
administrative fee from the vendor
14
Vendor Fragmented buyers
$$$
@ GPO negotiated price
products
GPO
15. Group purchasing organizations advertise
benefits to both hospital and vendors
Benefits to Hospitals:
– Cost savings from quantity discount
– Operational savings in procurement
– Vendor qualification
– Managerial support
Benefits to Vendors:
– Volume sales
– Marketing opportunity
– Reduced marketing costs
– Hospital contract compliance monitoring
15
17. 17
In many settings involving federal contracts, payments from
vendors to procurement departments are illegal
18. 18
However, the hospital GPOs are permitted to receive sales
fees from manufacturers
(a special Congressional exemption from federal anti-kickback laws)
20. GPO practices have been investigated by various
government entities
In 2002 following a series of articles in the New York Times,
Premier and Novation ( two of the largest GPOs) were investigated
by:
• the Federal Trade Commission (FTC) who wanted to know
whether the buying groups wield too much power (negotiated
contracts were worth more than $30 billion)
• the inspector general for the Centers for Medicare and Medicaid
Services (CMS)
• the General Accounting Office, the investigative arm of Congress
• the antitrust subcommittee of the Senate Judiciary Committee
• NY State Attorney General Office
20
21. In response to the various investigations
GPOs promised to adopt a code of conduct
• Eliminate self-dealing, i.e. stop investing in supply
companies.
• Contract with more companies, no longer sign exclusive
contracts with single manufacturers for certain medical
supplies
• Limit the length of the contracts (long contracts protected
incumbents)
• Limit contracts that condition discounts on bundling of
unrelated products
21
22. A 2002 GAO investigation found that GPO contracts
did not always offer hospitals better prices
22
23. The 2010 GAO investigation was unable to identify
any published peer-reviewed studies
that included an empirical analysis of pricing data
that indicated whether or not
GPO customers obtain lower prices from vendor
23
24. In response -
GPOs introduced custom contracting
The practice of custom contracting is described in GAO-12-126, a
2012 GAO report on hospital purchasing of implantable devices
24
25. Our research focus is custom contracting
25
Who benefits:
• GPO
• GPO vendor
• member hospitals
and to what extent?
26. Relevant literature falls into four broad
categories
o Group purchasing:
• The mechanism for price reduction obtained through GPOs
• Effect of contract administration fees (CAF) on supply chain
participants
• Allocation of savings in group purchasing alliance
o Reasons for existence of supply chain intermediaries
26
27. Relevant literature falls into four broad
categories
o Group purchasing:
• The mechanism for price reduction obtained through GPOs
• Effect of contract administration fees (CAF) on supply chain
participants
• Allocation of savings in group purchasing alliance
o Reasons for existence of supply chain intermediaries
27
28. Analytical game-theoretic models have been used
to examine how GPOs provide savings when
dealing with multiple suppliers
O’Brien and Shaffer(1997), Dana (2003) prices are
lowered through the exclusive dealing mechanism, i.e.
ability to shift demand to a competitor
Marvel and Yang (2008) hospitals differ in preferences
for products from different supplies, price is lowered through
competition-intensifying effect of non-linear tariff.
Hu and Schwartz (2011) GPOs increase competition
between manufacturers and lower prices for healthcare
providers. However, GPOs reduce manufacturers' incentives to
introduce innovations to existing products.
28
29. Relevant literature falls into four broad
categories
o Group purchasing:
• The mechanism for price reduction obtained through GPOs
• Effect of contract administration fees (CAF) on supply chain
participants
• Allocation of savings in group purchasing alliance
o Reasons for existence of supply chain intermediaries
29
30. Hu, Schwartz (2011) conclude that elimination of contract
administration fee (CAF) would not affect any party's profits or
costs.
Hu, Schwartz, and Uhan (2012) conclude that CAF
does not affect hospital costs, but affects distribution of profits
between a GPO and vendors.
30
31. Relevant literature falls into four broad
categories
o Group purchasing:
• The mechanism for price reduction obtained through GPOs
• Effect of contract administration fees (CAF) on supply chain
participants
• Allocation of savings in group purchasing alliance
o Reasons for existence of supply chain intermediaries
31
32. Empirical and analytical studies examine
the stability of purchasing alliances:
• Survey-based studies identify drivers of success and failures of
alliances: Doucette (1997), Nollet & Beaulieu
(2003), Schotanus (2005). Unfair allocation of savings
is identified as one of the reasons for the failure of an alliance.
• Game-theoretic models are used to examine the trade-offs in
allocating cost savings to group members of alliances:
Heijboer (2002), Schotanus (2004), Schotanus
et al. (2008), Nagarajan et al. (2008), Chen et
al. (MSOM Conf., 2013)
32
33. Relevant literature falls into four broad
categories
o Group purchasing:
• The mechanism for price reduction obtained through GPOs
• Effect of contract administration fees (CAF) on supply chain
participants
• Allocation of savings in group purchasing alliance
o Reasons for existence of supply chain intermediaries
33
34. Wu (2004) categorizes supply chain
intermediaries into two broad types:
• Transactional intermediaries – aggregate supply and
demand, reduce costs associated with searching and
matching
• Informational intermediaries – synthesize dispersed
information or reduce information asymmetry, create trusted
institution
Other reasons for existence of intermediaries and intermediary
profits are examined in Belavina and Girotra (2012),
Yang and Babich (2013), Adida et al. (2013)
34
35. None of the literature explains the custom
contracting arrangement,
also healthcare GPOs are unlike most supply
chain intermediaries
• they aggregate demand, but do not hold inventory
• operate in a highly regulated environment
• margins are set externally
35
36. We create a game-theoretic model to
analyze the impact of custom contracting
36
37. Assumption I: From the point of view of any
particular hospital the demand qty is inelastic
37
A hospital will have to purchase needed
implants from some manufacturer.
46. Price secrecy exits not only with physician
preference items, but also with
commodities such as saline solution
46
47. In healthcare market, product quality is known,
while price information is not readily available
47
Uncertain
Price
Quality
UncertainKnown
Known
48. In healthcare market, product quality is known,
while price information is not readily available
48
Uncertain
Price
Quality
UncertainKnown
Known
49. In healthcare market, product quality is known,
while price information is not readily available
49
Uncertain
Price
Quality
UncertainKnown
Known
‘Market for Lemons’
50. In healthcare market, product quality is known,
while price information is not readily available
50
Uncertain
Price
Quality
UncertainKnown
Known
‘Market for Lemons’
‘Market for Healthcare’
51. Assumption III: Price attainable through vendor-
hospital negotiations is random &
stochastically decreasing in demand
51
Upper limit on attainable
price
Lower limit on
attainable price
PurchasePrice,$/unit
Expected price
Hospitals’ purchase volume [units/period]
52. Assumption IV: GPO member hospitals are
heterogeneous in terms of demand volume.
This distribution is known to the GPO vendor.
52
#ofmemberhospitals
Hospitals’ purchase volumes [units/period]
53. Assumption V: Decision timing
53
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
GPO-selected vendor sets the
GPO-wide contract price for all
members
54. Assumption V: Decision timing
54
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
Hospital decides whether to
purchase supplies at this price,
or to negotiate with other
vendors
55. Assumption V: Decision timing
55
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
If the hospital is able to find a
lower price from another vendor,
it purchases supplies from that
vendor. Otherwise, from the GPO
vendor at the general price
56. Assumption V: Decision timing
56
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
When custom contracting is
allowed, a hospital can invite
the GPO vendor to
participate in custom
negotiations
57. Assumption V: Decision timing
57
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
The GPO vendor can choose
to participate or not to
participate
58. Assumption V: Decision timing
58
TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
The hospital will purchase
supplies at the lowest
negotiated price
59. TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
Result I: The GPO vendor is never worse off
with custom contracting
59
The GPO vendor can always
refuse to participate in
custom negotiations
60. TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
Result II: The GPO is never worse off with
custom contracting
60
If the GPO vendor agreed to
participate means that its
expected revenue is higher
than when it does not
participate
61. Illustrative Example:
GPO with three member hospitals
61
Demand: 52 units per
period
Demand: 69 units per
period
Demand: 180 units per
period
62. Illustrative Example:
GPO with three member hospitals
62
Per unit price attainable in
negotiations with a single
vendor: $6,674 to $10, 674
Per unit price attainable in
negotiations with a single
vendor: $6,173 to $10, 173
Per unit price attainable in
negotiations with a single
vendor: $2,632 to $6,632
63. The unit price the hospitals expect to pay after
negotiations with outside vendors depends on
the contract GPO price
63
This is the
expected
minimum of the
negotiated price
for this hospital
and the GPO-wide
contract price
64. The unit price the hospitals expect to pay after
negotiations with outside vendors depends on
the contract GPO price
64
When the GPO-
wide contract
price is low, the
expected price is
the GPO-wide
contract price
65. The unit price the hospitals expect to pay after
negotiations with outside vendors depends on
the contract GPO price
65
The curves are
different for
different hospitals,
larger hospitals
will start
negotiating at
lower GPO-wide
prices
66. Another way to look at the decisions is to look at
which value of GPO-wide contract price, the
hospitals can expect to experience cost savings
from negotiations
66
larger hospitals
will start
negotiating at
lower GPO-wide
prices
67. Result III: Decision to negotiate is non-decreasing
in hospital size and in GPO-wide contract price
67
larger hospitals
will start
negotiating at
lower GPO-wide
prices
68. The expected demand for the GPO vendor is
a function of the GPO-wide contract price
68
When the GPO-
wide contract
price is low, all the
hospitals buy the
supplies from the
GPO vendor
69. The expected demand for the GPO vendor is
a function of the GPO-wide contract price
69
As the price
increases , the
larger hospital will
buy supplies from
the GPO vendor
only if the hospital
does not find a
lower price
elsewhere
70. The expected demand for the GPO vendor is
a function of the GPO-wide contract price
70
The “jump” results
from the fact that
the negotiations
are not costless for
the hospital
71. The expected demand for the GPO vendor is
a function of the GPO-wide contract price
71
As the GPO-wide
contract price
increases further,
the midsize
hospital also starts
to negotiate with
other vendors
72. The GPO vendor sets the GPO-wide contract
price to maximize its expected profit
72
Price x Expected
Demand
73. Result III: The GPO-wide contract price is never lower than the
price at which the largest hospital is indifferent between
purchasing from the GPO vendor and negotiating further.
73
Setting the price
lower will result
in lower
expected profit
74. Result IV: Having access to a GPO contract results
in expected savings for member hospitals
74
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Total expected cost without a
GPO
$642,684 $503,642 $413,632
Total cost with GPO contract,
GPO vendor acts optimally.
$540,000 $207,000 $156,000
Savings from having access to
the GPO contract
$102,684 $296,642 $257,632 $656,958
Percentage savings 16% 59% 62% 42%
Assumed
negotiations with
4 vendors
75. Result IV: Having access to a GPO contract results
in expected savings for member hospitals
75
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Total expected cost without a
GPO
$642,684 $503,642 $413,632
Total cost with GPO contract,
GPO vendor acts optimally.
$540,000 $207,000 $156,000
Savings from having access to
the GPO contract
$102,684 $296,642 $257,632 $656,958
Percentage savings 16% 59% 62% 42%
Includes the cost
of negotiations
with 4 vendors
76. Result IV: Having access to a GPO contract results
in expected savings for member hospitals
76
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Total expected cost without a
GPO
$642,684 $503,642 $413,632
Total cost with GPO contract,
GPO vendor acts optimally.
$540,000 $207,000 $156,000
Savings from having access to
the GPO contract
$102,684 $296,642 $257,632 $656,958
Percentage savings 16% 59% 62% 42%
Assumes GPO
vendor sets price
of $3K, optimal
for all hospitals
not to negotiate
77. Result IV: Having access to a GPO contract results
in expected savings for member hospitals
77
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Total expected cost without a
GPO
$642,684 $503,642 $413,632
Total cost with GPO contract,
GPO vendor acts optimally.
$540,000 $207,000 $156,000
Savings from having access to
the GPO contract
$102,684 $296,642 $257,632 $656,958
Percentage savings 16% 59% 62% 42%
Largest % savings for the
smallest hospital
78. Result V: The GPO vendor benefits at the expense
of other vendors
78
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Expected demand without a
GPO contract
180/4 69/4 52/4
Total expected profit without a
GPO vendor contract
$134,421 $99,661 $77,158
Total profit with GPO vendor
contract
$511,840 $196,205 $147,865
Increase in profit from having
access to the GPO contract
$377,419 $96,544 $70,707 $544,670
Percentage increase in GPO
vendor profit
281% 97% 92% 175%Includes the cost
of negotiations
with the hospital
79. Result V: The GPO vendor benefits at the expense
of other vendors
79
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Expected demand without a
GPO contract
180/4 69/4 52/4
Total expected profit without a
GPO vendor contract
$134,421 $99,661 $77,158
Total profit with GPO vendor
contract
$511,840 $196,205 $147,865
Increase in profit from having
access to the GPO contract
$377,419 $96,544 $70,707 $544,670
Percentage increase in GPO
vendor profit
281% 97% 92% 175%
Additional
demand plus
lower cost of
negotiations
80. Result V: The GPO vendor benefits at the expense
of other vendors
80
Hospital Demand
Total
180 69 52
Expected price without a GPO $3,431 $6,936 $7,473
Expected demand without a
GPO contract
180/4 69/4 52/4
Total expected profit without a
GPO vendor contract
$134,421 $99,661 $77,158
Total profit with GPO vendor
contract
$511,840 $196,205 $147,865
Increase in profit from having
access to the GPO contract
$377,419 $96,544 $70,707 $544,670
Percentage increase in GPO
vendor profit
281% 97% 92% 175%
Significant increase, due primarily to
capturing the demand of the large
hospital
81. TreePlan Trial Version, For Evaluation Only www.TreePlan.com
Hospital: don't negotiate
0
0 0
0.5
Negotiated price above GPO price
0
0 0
1
0 0 0 0.5
Negotiated price below GPO price
0
0 0
Hospital: negotiate 0.5
1 Negotiated price above GPO price
0 0 0
0 0
0 0 0.5
Negotiated price below GPO price
0
0 0
1
0 0 0.5
Negotiated price above GPO price
0
0 0
GPO vendor: participate
0.5
0 0 GPO vendor selected
0.5 0
0 0
0 0 0.5
GPO vendor not selected
0
0 0For Evaluation Only
GPO
vendor
set price
Pg
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
q P g - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
Hospital:invite GPO
vendor
Hospital: don't
invite GPO vendor
GPO vendor: don't
participate
Negotiated price
below GPO price
λ q P g q P g + c (k,0 )
0 q E [p (q,P g ,0 ) | p <P g ] + c (k,0 )
λ q E [p (q,P g ,1 ) | p <P g ] - k v q E [p (q,P g ,1 ) | p <P g ] + c (k,1 )
GPO vendor payoff Hospital cost
λ q P g q P g
λ q P g - k v q P g + c (k,1 )
Next, we take a closer look at custom contracting
81
82. Because the GPO vendor can participate in
negotiations, it will occasionally be the low-
price bidder & get additional sales
82
So the additional
revenue can be
thought of as
coming from
expected
additional demand
at the GPO-wide
price
83. Because the GPO vendor can participate in
negotiations, it will occasionally be the low-
price bidder & get additional sales
83
Prob of being lowest
cost bidder
x
Expected per unit
price
x
full demand
/ GPO-wide contract
price
84. Result VI: The GPO vendor does NOT reduce
price when custom contracting is allowed
84
Prob of being
Maximum
expected profit
with custom
contracting
85. Result VI: The GPO vendor does NOT reduce
price when custom contracting is allowed
85
Prob of being
Maximum
expected profit
without custom
contracting
86. An increase in GPO-wide price leads to an increase
in costs even for hospitals that engage in
negotiations
86
Hospital Demand
Total
180 69 52
Per unit GPO-wide price
without custom contracting
$3,000
Total cost with GPO contract,
GPO vendor acts optimally
$540,000 $207,000 $156,000
Per unit GPO-wide price with
custom contracting
$6,900
Total expected cost (including
negotiations) with custom
contracting
$642,684 $476,100 $358,800
Expected increase in costs $102,684 $269,100 $202,800 $574,584
Percentage expected increase 19% 130% 130% 39%
It is optimal for the large
hospital to negotiate, still its
costs are higher
87. The total expected profit for the GPO vendor
increases, even though the expected profit
coming from large hospitals may decrease
87
Hospital Demand
Total
180 69 52
Per unit GPO-wide price
without custom contracting
$3,000
Total cost with GPO
contract, GPO vendor acts
optimally
$523,800 $200,790 $151,320
Per unit GPO-wide price
with custom contracting
$6,900
Total expected cost
(including negotiations) with
custom contracting
$129,788 $461,817 $348,036
Expected increase in costs -$394,012 $261,027 $196,716 $63,731
Percentage expected increase -75% 130% 130% 7%
This large hospital will be
buying the supplies from the
GPO vendor less frequently
88. Interestingly, that with custom contracting the
procurement manager of a large hospital looks
good, because it looks like s/he negotiated
significant savings relative to the GPO price
88
Purchase at GPO price: $6,900 x 180 = $1,242,000
Negotiated unit price: $3,431
Purchase at negotiated price: $3,431 x 180 = $617,684
Cost of negotiations: $25,000
Total cost: $642,684
Savings: 48%
89. Managerial Conclusions (I/II):
Custom contracts generate an illusion
of additional savings
The ‘Custom Contracting’ flexibility option
comes at a price!
We prove that Custom contracts:
o increase profits for GPOs and vendors,
o do not increase the savings for hospitals
89
90. GPO price becomes a misleading benchmark
for measuring relative cost savings
But, ‘Custom Contracting’ makes the
procurement managers look better
(And they are the one who ‘select’ the GPO to use)
The hospital industry, therefore, may have a hard
time effectively blocking this costly practice
90
Managerial Conclusions (II/II):
Custom contracts generate an illusion
of additional savings
Eliminate self-dealing: not to steer contracts to a vendor in which the GPO holds a stake. Not to receive stock or other securities from vendors in exchange for business
to the 2002 US GAO investigation
to the 2002 US GAO investigation
For example, Kaufmann & Wang (2001), Anand & Aron (2003), studies pricing in Internet-based group buying in a B2C context.
Burns and Lee (2008) studies the effectiveness of healthcare GPOs in the Unites States.
Schotanus (2004) identifies the unfair allocation of cost savings among members as one of the important reasons behind the failure of some consortia.
Hu and Schwarz (2008) studies duopoly competition between GPO vendors to analyze the impact of group purchasing on cost of procurement, incentive to innovate, etc.
For example, Kaufmann & Wang (2001), Anand & Aron (2003), studies pricing in Internet-based group buying in a B2C context.
Burns and Lee (2008) studies the effectiveness of healthcare GPOs in the Unites States.
Schotanus (2004) identifies the unfair allocation of cost savings among members as one of the important reasons behind the failure of some consortia.
Hu and Schwarz (2008) studies duopoly competition between GPO vendors to analyze the impact of group purchasing on cost of procurement, incentive to innovate, etc.
For example, Kaufmann & Wang (2001), Anand & Aron (2003), studies pricing in Internet-based group buying in a B2C context.
Burns and Lee (2008) studies the effectiveness of healthcare GPOs in the Unites States.
Schotanus (2004) identifies the unfair allocation of cost savings among members as one of the important reasons behind the failure of some consortia.
Hu and Schwarz (2008) studies duopoly competition between GPO vendors to analyze the impact of group purchasing on cost of procurement, incentive to innovate, etc.
For example, Kaufmann & Wang (2001), Anand & Aron (2003), studies pricing in Internet-based group buying in a B2C context.
Burns and Lee (2008) studies the effectiveness of healthcare GPOs in the Unites States.
Schotanus (2004) identifies the unfair allocation of cost savings among members as one of the important reasons behind the failure of some consortia.
Hu and Schwarz (2008) studies duopoly competition between GPO vendors to analyze the impact of group purchasing on cost of procurement, incentive to innovate, etc.
For example, Kaufmann & Wang (2001), Anand & Aron (2003), studies pricing in Internet-based group buying in a B2C context.
Burns and Lee (2008) studies the effectiveness of healthcare GPOs in the Unites States.
Schotanus (2004) identifies the unfair allocation of cost savings among members as one of the important reasons behind the failure of some consortia.
Hu and Schwarz (2008) studies duopoly competition between GPO vendors to analyze the impact of group purchasing on cost of procurement, incentive to innovate, etc.
Efficient Market: Both price and product quality are readily available
(e.g., Securities)
Opaque Pricing: Price is known but product details are not (e.g., HotWire, Priceline)
Market for Lemons: Price is known but the product quality is hidden (e.g., used cars)
Market for Health: Product quality is known but price information is not readily available (e.g., medical devices)
Efficient Market: Both price and product quality are readily available
(e.g., Securities)
Opaque Pricing: Price is known but product details are not (e.g., HotWire, Priceline)
Market for Lemons: Price is known but the product quality is hidden (e.g., used cars)
Market for Health: Product quality is known but price information is not readily available (e.g., medical devices)
Efficient Market: Both price and product quality are readily available
(e.g., Securities)
Opaque Pricing: Price is known but product details are not (e.g., HotWire, Priceline)
Market for Lemons: Price is known but the product quality is hidden (e.g., used cars)
Market for Health: Product quality is known but price information is not readily available (e.g., medical devices)
Efficient Market: Both price and product quality are readily available
(e.g., Securities)
Opaque Pricing: Price is known but product details are not (e.g., HotWire, Priceline)
Market for Lemons: Price is known but the product quality is hidden (e.g., used cars)
Market for Health: Product quality is known but price information is not readily available (e.g., medical devices)
GPO prices become a misleading benchmark for measuring cost savings. But, it makes the procurement managers look better. (And they are the one who ‘select’ the GOP to use)
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The highly fragmented hospital industry may have a hard time effectively blocking this practice.