10 Steps for Spine Surgeons to Negotiate Best Vendor Contracts FeaturedWritten by Laura Miller | June 04, 2012
Adam Higman of Soyring Consulting discusses 10 steps for spine surgeons and groups to take when negotiating contracts with implant vendors.
1. Decide whether to consolidate vendors. The first thing spine groups should do to prepare for vendor negotiations is pull data from their internal system to get an idea of which vendors they are using and how much each implant costs. Based on that information, decide whether it makes sense to continue using a wide variety of vendors or if the group can consolidate to realize savings.
"The first thing spine groups have to do is have a good lay of the land," says Mr. Higman. "Make financial decisions about whether it makes sense to use the same mix of vendors or if you can get a better deal with consolidation. Or, you may want to introduce new vendors into the mix."
2. Bring all partners together for a discussion on preference items. In situations where one leader usually represents the whole group, it's smart to have a meeting with all partners to discuss potential consolidation before making the first move. All surgeon partners should be part of the discussion so preference items don't suddenly disappear without an explanation.
"It's a good idea to have a sit down meeting with every practitioner involved to get an idea of what their 'must haves' are and what they are willing to negotiate," says Mr. Higman. "Sometimes they will feel no difference between two or three vendors."
It might be necessary to identify items among the physician group that are unique and you are willing to pay a premium for, but keep the discussion behind closed doors. "Don't tell the vendors which items you are willing to pay a premium for, but you should know what the novel technology is that you really want to keep using," says Mr. Higman. "Keep that in mind when you are picking your vendors."
3. Standardizing pricing information and set caps. To prepare for the actual negotiation, figure out the standard price in your area for each device and set a price cap you aren't willing to succeed. This works best if the practice is larger and can offer the benefit of volume to the vendor, who may need to lower the price of a titanium screw or implant based on your price cap.
"There are some times when you might need to play hard ball, and be careful because it might not go your way," says Mr. Higman. "In that case, evaluate the market share and figure out where there are opportunities."
4. Make a demand for implant savings and stick to it. Tell vendors you are looking to see specific margins to save a certain amount in the upcoming year, which means you are looking to cut materials cost by for example 10 percent, and ask them what they can do for you. Making these types of demands could help streamline the conversation to the right price range, but you have to be sincere about your commitment to saving.
"Don't make the demand unless you are really willing to switch vendors to get what you want," says Mr. Higman. If the vendor can't deliver, explore the other options you have in the market.
5. Meet with vendors face-to-face. When you are first beginning to scope out the market, reaching out by phone can make the initial connection. However, when you are ready to negotiate, meet with the vendors face-to-face to get the real pricing done. The number of vendors you meet with will vary depending on your market and practice size.
"If you are in a rural area or part of a smaller practice, your options are more limited," says Mr. Higman. "You might have three vendors to reach out to instead of 10, but face-to-face meetings are still the best way to go."
6. Prepare for a long negotiation. As with any negotiation, you won't want to take the first offer from your vendor. Oftentimes, you won't even want to take the second. Be prepared to spread the back and forth negotiations across several weeks or months to get the best contract.
"Folks will expect that they can save a certain amount of money or come to an agreement in a month while in reality it could take three or four months," says Mr. Higman. "Be prepared for negotiations to happen back and forth."
7. Highlight practice strengths during the negotiations. Implant vendors are dependent on physicians and physician groups for their business, so don't be afraid to highlight the group's strengths in explaining why you want to negotiate a lower rate. For example, if you are a larger group, you could provide the vendor with more business. If your surgeons have influence in the community and spine field, their use of the product will also be valuable to the vendor.
"The more business you provide the vendor, the more demands you can make," says Mr. Higman. "Leverage can also come from prestige. Are you a well-known surgeon and do you engage in a lot of research? Do you work out of large centers where you have pull as to what they purchase? I would encourage folks to take that seriously."
When surgeons are engaged in research, their name becomes more prevalent in the spine space and they evolve into spine thought leaders, which will give them more leverage with implant vendors as well.
8. Understand market fluctuations. There are differences in implant and materials prices based on market location. Just because a surgeon in Iowa can get one price doesn't mean a surgeon in New York should try to negotiate the same rate.
"Cost of living calculates into what you pay in terms of product prices," says Mr. Higman. "I've seen it to where someone talks to a friend in another part of the country and then demands the same rates. Vendors can't always meet these demands because they have different bottom lines for various reasons."
9. Set reasonable goals from the vendor's perspective. When you set your goal, make sure it's reasonable for the vendor to meet. Your sales representative is making a commission from their sales, and proposing a 30 percent to 40 percent cut on their pricing can have a huge impact on their business and your relationship with them.
"Vendors want your business, but there are nuances to this relationship you have to keep in mind," says Mr. Higman. "The people you are talking to across the table are an important part of the equation — not just the company they represent. You want these people to be reliable. If you have a last minute case and you need another implant set, you want to make sure they'll be available for you."
10. Bring in a third party group purchasing organization. If you are really having trouble with your pricing, joining a GPO or working though another third party group could give you a baseline of where your pricing should be. These groups can also provide rates available exclusively to their members.
"If you are first starting a practice and you don't have good insight into what you should be paying, it's not a bad idea to get some kind of baseline," says Mr. Higman. "You can go to a GPO or consulting firm to figure out these baselines."
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