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Hospitals: Are You Getting the Best Deal on Healthcare Industry IT Purchases?

Despite pressures to reduce healthcare delivery costs, IT overspending within hospitals is rampant. NPI explores how the profound transformations happening across the industry are contributing to this issue, and provides examples of vertical-industry IT vendors with which overspending can easily happen.

Like many industries, healthcare is experiencing a period of historic transformation. However, the changes happening in healthcare are particularly complex as today’s providers find themselves in the crosshairs of the volatile politics of the Affordable Care Act and an unstable insurer market. Meanwhile, the cost to deliver quality patient care is increasing. Yet another dynamic is that public policy is prompting many providers to shift from traditional fee-for-service reimbursement models to a value-based care model that rewards providers for providing better patient care and reducing healthcare costs.

These changes are happening alongside a force that’s upending virtually every industry in the marketplace – digital transformation (think Amazon, Uber, NetFlix, etc.). One example of how this impacts healthcare providers is the need to consider technologies that advance care delivery beyond the traditional office visit. According to business consulting firm West Monroe Partners, more than 90 percent of healthcare customers take advantage of mobile apps when offered, and 80 percent prefer mobile to a traditional office visit. Wearable health-tracking devices, advances in artificial intelligence and data analytics, and accelerated adoption of the cloud are allowing healthcare providers to deliver remote quality care.

As these trends and pressures evolve, IT buying teams in the healthcare provider industry – especially hospitals – find themselves in a tough position. Keeping pace may require more IT spending, but tight budgets mean it’s more important than ever to get maximum value at minimum cost for every IT purchase and renewal.

OVERSPENDING (AND SAVINGS) OPPORTUNITIES BY VENDOR

One way to stretch budgets further is to consistently ask a fundamental question: “Are we getting the best deal on this specific product or service?” If not, close the gap.

Since 2003, NPI has performed price benchmark analysis on thousands of IT purchases for its hospital clients. Like all enterprises, these organizations buy IT solutions from the usual suspects—Microsoft, Oracle, IBM, VMware, Cisco, Dell, EMC and so on – and overspending is frequent for these purchases (for example, 7-figure savings on Microsoft renewals are typical when licensing expertise is applied during the buying process).

But let’s shine a light on industry-specific solutions such as EHR, PACS, nurse communications, etc. Across the healthcare vertical solution purchases NPI has reviewed since January 2016, the following table highlights the 10 vendors for which the most purchase transactions were improved, and the range of savings actually achieved by hospital clients with NPI’s assistance.

One way to stretch budgets further is to consistently ask a fundamental question: “are we getting the best deal on this specific product or service?” If not, close the gap.

IT Vendor name
Range of Savings achieved
 3M Health Information Systems
 8 to 15%
 Abbott - 17 to 48%
17 to 48%
 AGFA HealthCare
8 to 12%
 Capsule (Qualcomm Life)
7 to 16%
 GE Healthcare
8 to 16%
 GetWellNetwork
5 to 26%
 McKesson/Allscripts
5 to 10%
 Nuance Communications
12 to 24%
 Voalte
19 to 24%

It’s important to note that this list (and savings) evolve over time depending on the spending patterns of our clients, vendors entering and leaving the market, competitive forces that put downward price pressure on solution categories, and other factors. But for hospitals that have an upcoming purchase or renewal with these vendors, be especially diligent about getting a best–in–class deal.

HOW DID NPI HELP HOSPITALS GET THE BEST DEAL ON THESE IT PURCHASES?

NPI HELPS ITS HOSPITAL CLIENTS REALIZE MATERIAL SAVINGS BY PROVIDING POWERFUL INFORMATION FOR THE IT BUYING TEAM.Transaction-specific price benchmark analysis and license optimization: Less than ten percent of the IT purchase and renewal transactions that NPI reviews across its client base are priced at fair market value as compared to peer purchases in the market (side note: just three years ago, that number was closer to 30 percent). If hospitals want to avoid overspending on IT purchases, transaction-level price benchmark analysis should be hardwired into the IT buying process. This requires access to external expertise that helps IT buyers answer four key questions:

  • Is deal pricing in line with what my peers are paying or for deals of similar size/scope?
  • If not, what are specific pricing targets for this purchase to bring it into alignment?
  • Does the vendor offer other pricing/licensing/subscription options that would meet my organization’s business and technical requirements for a lower cost?

Contractual optimization insight: Price isn’t the only determinant of a fair deal. There are other terms and conditions also affect total cost of ownership for any IT investment. It’s important for hospitals to understand how (and which) business terms can impact spend, and the best-in-class targets for each.

Vendor negotiation intel: Healthcare IT vendor sales teams are highly trained to extract the most revenue from every purchase, and usually have well-rehearsed playbooks for each step in the negotiation process. Hospitals’ IT buying teams need to have the corresponding internal alignment and playbooks for getting the best deal on every purchase and renewal. This information is situational and vendor-specific. It turbo-charges negotiation effectiveness. For some hospital clients, NPI actually performs the entire business terms negotiation for all of their larger IT purchases.

Given the changing dynamics happening across the healthcare provider and IT landscapes, it’s impossible for IT and sourcing professionals to be experts on every purchase as it relates to pricing, licensing/subscription models, licensing strategy, business terms and vendor behavior. Many forward-thinking hospitals use NPI’s transaction-specific price benchmark analysis and negotiation intel to fill these gaps. By optimizing every IT purchase and renewal, these organizations are able to tackle their transformation challenges head on while keeping IT spend in check.