Getting Ready for Capital Budget Season: Planning for the Best Price

Summer is the start of the capital budget season for many hospitals, an annual rite of passage for hospital executives that can be a major source of heartburn. As we have touched on in previous blog posts, in this era of uncertainty regarding pending healthcare reform, finding innovative sources of cost savings is a top priority for hospital leaders. While the capital budgeting process typically represents a need to find more money to spend, for cost conscious hospital executives it also represents a big opportunity to build more SAVINGS into the capital budget. How?

An easy way hospitals can avoid unnecessary spending on medical equipment is to rethink the role of “planning” or “budgetary” quotes in preparing budgets and capital funding requests for equipment. These preliminary quotes are typically provided by suppliers at the very early stage of the planning process, and serve an important function for both hospitals and suppliers.  However, for many reasons, budgetary quotes will rarely represent the best possible price.

Out of necessity, these planning quotes incorporate a significant amount of “wiggle room” that with the right information, can be shifted from a potential source profit for the suppliers to potential source of savings that benefit the hospital.

Here are three strategies that can have a dramatic impact on your final equipment price and total savings:

1. Find the price gap – the data we’ve observed around medical equipment purchases across the U.S. shows that the “price gap” – or the difference between the planning quote price and the best available actual price – can be as much as 30%. Knowing how much difference there may be can set you up for a much more confident, effective negotiation with your supplier once your budget has been approved.

2. Verify specs – while knowing the price gap can inform you about any excess cost built into your planning quote and budget, it is equally important to make sure the budget does not underestimate the cost to meet the clinical requirements and system configuration needed by the end user.  Seemingly small changes to a configuration can dramatically alter the final purchase price and could wreak havoc on your budget.  An easy way to avoid this problem is to thoroughly review the system requirements with the clinical department prior to requesting the budgetary quote.

3. Don’t tell – one of the quickest ways to reduce the potential savings you can realize is to tell your suppliers once your budget has been approved. This information gives suppliers an advantage in knowing the funding for their product was approved, and can reduce their incentive to provide you with additional savings.

Keep these best practices in mind as you head into your next capital budget cycle to help your hospital shift the advantage in the purchasing “game” from the suppliers’ rules to yours. You’ll be the hero that brought the savings to the table.

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