Improving Pricing Accuracy Requires Four-Way Coordination

Prime Vendor: Getting the Most from Your Most Important Supplier

By Jeff Girardi, HIDA

A little over four years ago, my organization, the Health Industry Distributors Association, launched an initiative to streamline healthcare contracting communications. This was a top-priority issue for our distributor members who sit in the middle of the process, between the manufacturers and GPOs who negotiate the prices and the end customers who just want to get the right price on their invoice.

Our ultimate goal is to ensure everyone has the right price, one that matches their trading partner’s price. But we also wanted to improve business processes for all trading partners –GPOs, distributors, manufacturers and providers – along the way.

After years of work, we haven’t yet “fixed” the healthcare contracting process, but we have made progress.

We’ve learned that inefficient contract management practices create cost and rework not only for our distributor members, but also for manufacturers, providers, and GPOs. Everyone is spending too much time trying to resolve pricing mismatches and errors. We heard this from six GPO executives who spoke at a recent HIDA Contract Administration Workgroup meeting, and we’ve heard it from providers at conferences like AHRMM.

We’ve elevated the discussion, by bringing together suppliers, providers, and GPOs to share their pain points and discuss solutions. Our second-annual Contract Administration Conference will take place April 19-20, providing a forum for trading partners to collaborate on process improvement.

And we’ve determined that the guiding principles with which we started are still the most important keys to improving contract administration:

• Automated, electronic processes
• Industry standards
• Timely communications

HIDA’s principles for improved contract administration processes Automation: 100 percent of communications and transactions should be electronic. Any process that cannot be automated should be redesigned. Standards: For transactions, EDI (electronic data interchange) formats are the gold standard for communicating information; CSV files matched to EDI formats are acceptable alternatives.For product and location identification, GS1 standards (GTIN/GLN) are strongly encouraged, followed by alternate third-party standard identifiers as acceptable cross-reference data points. Timeliness: Trading partners must embrace contract negotiation deadlines that allow timely notice of contract changes. Distributors must have 45 days’ notice prior to a contract’s effective date to load pricing, communicate to providers, and allow providers the opportunity to review and load pricing.

There’s a lot more to it, but clearly we still need to embrace these basic principles. Instances of providers and suppliers using email, fax, or even handwritten orders still occur in healthcare and lead to costly errors or rework. Even if materials managers can’t justify the cost of investing in EDI systems, adopting standardized formats for communicating contract changes can greatly improve end-to-end automation efforts.
We recognize that some of these principles are harder to adopt than others for certain constituents. Some require changes to information systems, business processes, or even company culture. But the hardest truth is that the costs of not embracing and adopting these three pillars, or demanding them from your trading partners, will only multiply for organizations operating beyond the scope of what are quickly becoming accepted as the industry standard.

Healthcare as a whole continues to experience unprecedented change, and will only become more sophisticated as customers demand more than the status quo. HIDA will soon release updated contract communication standards resources for manufacturers, distributors, providers, and GPOs. Visit www.StreamliningHealthcare.org/Improving-Pricing-Accuracy for more information and to start taking action.