Price alignment and cost containment

Opportunities still exist within the healthcare supply chain for improvement and greater efficiency of operations. Lately, price alignment strategies appear to be at the forefront as the newest hope for cost containment success.

As a strategy, price alignment focuses on ensuring providers are paying competitive market rates for their supplies by identifying where there is price variation for the same or similar supplies.

“The reason why price alignment strategies are so important is because it takes waste and cost out of the healthcare supply chain,” said Rachel Hall, executive director at the Advisory Healthcare practice, Ernst & Young.

Supply chain leaders should consider which alignment approach is most effective for different spend categories.

Hall said one factor holding back price alignment is that the supply chain is still primarily a manual process. “So you’re seeing a lot more push toward automation through EDI and things like contracting pools,” Hall said.

[See also: Automating the supply chain .]

According to Harry Kirschner, executive director, spend performance solutions at The Advisory Board, supply chain price alignment has several advantages.

“Some of the better spend analytic solutions also include intelligence around the type of commitment the organizations with better pricing are providing to suppliers — so providers can better understand what it takes to achieve better price performance,” Kirschner said. “It’s important that providers leverage benchmarks that are neutral and unbiased with regard to GPO contract affiliation to ensure the data provide an accurate view of the real opportunity.”

According to Kirschner, the three primary strategies of price alignment include: price leveling, supply standardization and capitation (or all-play partnership).

“Supply chain leaders should consider which alignment approach is most effective for different spend categories, which is largely dictated by the amount of preference or product differentiation and the level of clinical alignment in place to drive and implement changes as needed,” Kirschner said.

Kirschner cited Intermountain Healthcare as an organization that has had success with supply chain price alignment.

“The most successful organizations, like Intermountain Healthcare, have established separate teams who implement each of the strategies and have created clear methodologies and playbooks to implement the approaches based on factors such as clinical alignment, supply market characteristics, criticality of the supply to patient care, and other factors,” Kirschner said.