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Avoiding medical supply price mismatches

Understanding roles in the group product purchasing pipeline can help minimize problems leading to errors

David Weldon, Contributor

As medical supply prices have risen steadily in recent years, many hospitals have turned to group purchasing organizations to buy in bulk and keep costs down. But group product purchasing also complicates the product supply trail, often leading to errors that prevent fulfillment, delivery and payment.

The primary reason that medical supply orders go astray is pricing mismatches, said Steve Inacker, president of hospital sales and services, medical segment at Cardinal Health in Dublin, Ohio.

[See also: Outcomes matter to hospital supply chain]

There are four participants in the process of getting medical products to the healthcare provider: the manufacturer, who sets the price; the group purchaser, who contracts the price; the distributor, who administers the price; and the customer, who pays the price. A single inventory number, address, or other key data point that is incorrect at any of those four steps will stop the order in its tracks.

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“If any of these four don’t match up, you get a rejection, either because information is not current, or it is just bad,” Inacker said.

There are two leading causes of pricing mishaps, according to Inacker. One occurs when a customer negotiates a special price directly with the manufacturer, and buyers and distributors aren’t in that loop. If the product normally has other prices affixed to it, or different ordering information, it will red flag and not process.

The second is when one of the four participants fails to notify the others of changes within required time frames, not giving the other parties enough time to make adjustments in their databases.

Each of the four participants in the process has a variety of conversion tables they use to ensure they are all talking about the same items, in the same quantities, for the same destinations, but ultimately, errors occur, Inacker noted.

Overall, the healthcare industry enjoys a 99.6 percent to 99.8 percent accuracy rate on medical product orders, Inacker said, but with millions of orders involved here, that 2.2 percent to 2.4 percent has significance.

“We run millions of lines of code daily,” Inacker said. “Our pricing process is very complicated. We have 300 people who do nothing but load and fix pricing.”

Other factors that can throw a wrench in the works are late or last minute price negotiations, and retroactive price changes. To guard against such problems, organizations usually require price change notification within a certain number of days – 45 at Cardinal Health.

Because errors can occur at any state of the process, customer involvement in the entire process is important, said Bill Abrams, president of the Distributed Products Division at Medline Industries in Mundelein, Ill.

“The system needs to be improved,” Abrams said. “Be engaged in the process. And negotiate early. Give everyone a chance to get the pricing loaded and connected, so that that invoice can just sail right through.”

System improvements are on the way in the form of new legislation taking effect next year that mandates standards in the medical product supply chain.