What’s at Stake in Your RFP Response to Hospital Customers?

The process of going to market for new product contracts and pricing is complex and taxing on all stakeholders. Healthcare providers generally see the request for proposal (RFP) process as a transactional effort to stir up competition, reduce costs, standardize products and implement contracts for a new purchase cycle. Hospital supply chain personnel, supplier representatives and even third-party consultants often engage in push-and-pull interactions to ensure the best outcome for each party.

A recent discussion with a supplier contracting rep illuminated aspects of our common interactions in navigating the RFP process. His insight spawned perspectives on the process that I intuitively understood but had not defined in a meaningful way. Orthopedic companies that participate in RFPs will be more successful if they know how a hospital or healthcare system is approaching the process, the players involved and the goals of the relationship.

Thoughtful pre-RFP consideration should be given to a relational versus transactional approach, as well as the device company’s costs to serve, such as expense in equipment transport and labor and conduct of an RFP, setting realistic expectations and getting creative with solutions.

Relational Versus Transactional: Which Approach is Best?

Providers are advised to set a tone for the process because the path taken could impact the outcome. Some providers take a robotic or “all-business” approach, while others recognize the value in building relationships with supplier partners.

The aforementioned sales representative felt that third-party consultant facilitation changed the RFP tone to be transactional versus a casual and relational approach to partnering and interfacing with the local provider team. My experience as a consultant suggests that a relational approach produces better outcomes, both financially and experientially.

Providers should ask several essential questions before initiating an RFP. Is the goal to lower prices through new contracts or partner with suppliers and internal stakeholders to build long-term strategic value? Do we want to strengthen supplier relationships or are we genuinely open to realignment? Do we have the internal relationships necessary to support our desired outcome?

Orthopedic companies that are relationally engaged with providers and strive to cultivate true value-exchange partnerships may be better positioned than those that are business focused.

The Basics: What is the Cost to Execute and Serve?

The RFP process has a cost, including time and resources devoted to analytics, communicating between entities, legal engagement in executing contracts and possible relational cost or “political capital” negotiating with stakeholders. These elements must be considered before running an RFP and in comparison to the desired outcome.

In some situations, it may be best for providers to negotiate locally with key suppliers to reduce RFP costs on both sides. This can result in improved value offered by the device company, as well as speed to value on the provider side.

Providers should consider the supplier’s cost to serve a hospital in relation to supplier price setting. Every person, process or product involved in the servicing of a provider has a cost associated with it, and costs are steadily rising. Hospital supply chain departments should consider the supplier’s cost of serving their account, which may not be obvious to them. Factors to consider include the size of the support team, the amount of product and instrument inventory needed to match surgeon preference and case demands, as well as costs associated with bringing materials into the organization.

A spine implant RFP I once facilitated highlighted the supplier’s cost to maintain trauma-related products and salaries for the 24/7 clinical rep coverage when split between two companies versus one. Aligning the surgeons with one spine company enabled the awarded supplier the ability to improve coverage and lower costs while returning hospital value in the transaction.

Cost of choice should also be considered. The more orthopedic companies there are in a category to maintain choice, the more costs are being distributed due to operational redundancy. The provider’s goal of reducing suppliers will have a positive impact on converting these costs into shared value as economies of scale are realized. Providers and suppliers working together may find creative ways to reduce costs and redundancy to create mutual value.

Get Creative: What Value Can We Offer?

I once heard a successful negotiator say, “Win/win means I win twice.” However, it is best to strategize on a mutual value-for-value exchange. The typical goals of an RFP are for the provider to gain price concessions and the supplier to grow revenue or market share. While this is often achieved, circumstances may not always support this outcome. In these cases, the parties involved must be creative to offer shared value.

Here is a list of strategies that have surfaced in RFP engagements that are offered to providers for consideration when orthopedic company growth is elusive:

• Shelf space. Availability of products and instruments improves a supplier’s chances of being used. A guaranteed percentage of shelf space tends to get products used versus shipment and delivery, which may complicate availability and increase costs.
• Low-risk contracting. Instead of the traditional committed arrangement where better pricing is offered with the intent or hope that conversion will happen, consider offering hospitals future savings in the form of a rebate once the commitment level is achieved. After that period, new permanent pricing can be enacted. Providers are beginning to realize that vendors frown upon writing down revenue based on the hope that the growth is realized. Reducing risk and adding teeth to an agreement encourages stakeholders to find a meaningful value exchange.
• Guaranteed product demo/trial. Smaller companies with less market presence often find it challenging to be taken seriously in the RFP process and pull back when not given an equal opportunity to secure new business. These companies often provide greater value than commonly used vendors. Securing a guaranteed product trial or show-and-tell for low-usage suppliers will ensure a seat at the decision-making table.

Recommendations for returning value to providers include:

• Cross-category bundling. Identify other categories to provide value and grow your revenue.
• Capital investment and enabling technologies. Find opportunities to achieve mutual growth in drawing surgeons and patients toward new solutions.
• Training and education. Ensure providers have easy access to the materials they need to best understand and use your product.
• Insights. Use data to help guide providers in reduced costs and increased efficiencies.

Closing Comments

Though the RFP process is a daunting exercise, relational and financial opportunities arise when it’s managed well from all sides. Consider your approach in building relationships versus an “all-business” transaction, consider the costs for both sides of the relationship, be realistic in your expectations and lastly, get creative in the ways you engage and receive value from providers. Providers and orthopedic companies that think outside the traditional RFP box can lower the costs of doing business while mutually enjoying value with trusted partners.