Bolstering Your Hospital’s Bottom Line: How to Gain Negotiation Leverage in Capital Equipment Purchases and Service Contracts was the topic of an educational webinar presented by Miga Solutions on May 1, 2018 sponsored by the MN Chapter of the Healthcare Financial Management Association (HFMA).
Miga Solutions founder and CEO, Peter Robson, shared proven strategies hospitals can use to gain leverage and drive the greatest savings when negotiating capital equipment purchases and service contracts. Robson provided a backdrop of several vignettes explaining how each of us encounter many types different negotiations in our lives, with each requiring different preparation and strategies to achieve the desired outcome. He went on to explain how capital equipment negotiations also require different preparation and strategies, and that they are different from many product and service negotiations hospitals are very familiar with.
In addition to the complexity of clinical equipment and technology, frequency of purchase is also another unique aspect of capital negotiations. While a hospital may buy supplies, medicine and other standard products at predictable volumes every 5, 7 or 10 days, they may only buy different types of capital equipment once every 5, 7 or 10 years. As a result, hospitals are less familiar, and less experienced with negotiating for a specific product from a specific manufacturer, and the secret to success is having the right information and insight before you begin the negotiation.
The webinar laid out three actionable strategies, supported by actual examples of how hospitals can strengthen and gain leverage in their capital negotiations to achieve the greatest possible savings and improve their bottom line. The three strategies reviewed are:
- (Create Plausible) Competition – the absence of legitimate, viable competition can cost your hospital more than you may think. An example of a 600-bed hospital that was renewing a multi-vendor service contract for 51 imaging systems showed how introducing viable competition enabled the hospital to reduce their contract price by $220,000 (18%) annually, or $1.1M in realized savings over the five year term of the contract.
- Communicate (Early…and Often) – the lack of clear and effective communication both internally, as well as externally with vendors, can kill the momentum of capital negotiations. An example was shared of how a community health system trying to fit a system-wide patient monitor conversion into a constrained budget, was able to eliminate conflicting communications between hospital staff and the vendor that threatened to derail their negotiation and savings. The hospital successfully reset the vendor’s expectations and realized $1.1M (19.7%) in incremental savings.
- (Don’t Fear) Commitment – don’t underestimate the power a purchase order (P.O.) can have with your vendors, but only after you are confident you have negotiated the best price. The final example showed how a hospital was able to effectively use the promise of a P.O. to overcome budget shortfalls as well as vendor skepticism in the face of ongoing purchase delays. With the promise of a binding P.O., the hospital was able to negotiate an unplanned $3M in savings that enabled them to open a new clinical wing both on time and under budget.
Knowing the right information is the best foundation for getting your hospital the most savings and ROI from all its annual medical equipment costs. While sometimes you may feel like there’s little you can do to gain an advantage in your capital equipment negotiations, the webinar showed how you can increase your leverage by arming yourself with the right information and insights and using the strategies presented. For your hospital, the benefit could be millions of dollars saved. The questions and comments we have received suggest the audience found the session beneficial and worth the investment of their time.
Interested in learning more about strategies for reducing your medical equipment lifecycle costs? Visit us at www.migasolutions.com or send us an email at info@migasolutions.com. We’d love to hear from you.
