Executive Insights

Last month, my friend and colleague, Brent Johnson, wrote an excellent article describing The Art of Selling in Healthcare. I would like to follow that with an article giving my opinion on the Ethics of Buying in Healthcare. With so much cost pressure being placed on all aspects of the healthcare industry, it can be tempting to sidestep ethical purchasing practices when making sourcing decisions for the organizations which we serve. The problem with these compromises is that a short-term gain may be very costly in the long run.

Most healthcare organizations may rely heavily on Group Purchasing Organizations (GPOs) for their supplier negotiations. This is a very effective practice as almost all of the GPO negotiations follow good ethical negotiation practices. However, self-contracting for some (if not all) of a healthcare organization’s needs continues to increase in practice. For the larger, well-coordinated Integrated Delivery Networks, this can lead to more effective negotiations and overall lower product and service costs.

The first task in negotiating for a necessary product or service is to understand which suppliers are able to provide you with an acceptable product or service. Including suppliers with unacceptable products or services in a bidding process with the thought that including them will drive down the bids of their competitors is just poor practice. If they win the bid, yet are not awarded the contract, this can quickly put on notice many or all suppliers invited to bid for future contacts. While these contacts might win the bid, they may not be awarded a contract. Therefore, rather than spend the time responding to future bids, they might just decline. This will reduce competition for future contracts.

While there is a cost to transition from an incumbent product or service, negotiating with that incumbent supplier to get down to a winning bid price is (again) unethical in my opinion. Taking into account the value of staying with the current product or service is certainly appropriate and a valid consideration in the decision-making process, but sharing pricing of a competing supplier only leads to reluctance by suppliers to either bid on or provide their most aggressive pricing in future bids.

Finally, negotiating broad-based contracts with suppliers that provide many lines of products reduces competition and provides said suppliers with the opportunity to maintain less than competitive pricing. Carefully bidding out each product line or service for acceptable products on a routine basis ensures access to the most recent technology with the most cost-effective pricing. This does require more resources compared to extending agreements or relying on GPO Contracts, but the investment, if done effectively, can pay off in a significant return on that investment.