Collaborative Solutions to Improve Pricing Accuracy Steve Inacker, President Hospital Sales and Services, Medical Segment Cardinal Health Bill Abrams, President Distributed Products Medline Industries, Inc.

Healthcare Supply Chain 2015 Strategic Insights for the Distribution Channel

Approach  McKinsey & Company partnership  In-depth interviews with 40 key provider execs across markets  HIDA Thought Leaders Summit Copyright 2013 Health Industry Distributors Assn.

Thought Leaders’ Top Recommendations 1.Fix the contracting process 2.Link products and outcomes 3.Implement and champion data standards 4.Partner in standardization / streamlining efforts 5.Enable the home setting Copyright 2013 Health Industry Distributors Assn.

Wonder Why Contracting Topped the List?  Pricing problems are a huge source of customer complaints  Time and cost invested in administering complex pricing systems  Complex processes need streamlining

Who Owns Contracting? Source: Cardinal Health

Who Owns Provider Communication? GPO Websites Sales Rep Sales Rep

Last-Minute Negotiations Challenge Pricing Accuracy Source: 2011 HIDA Survey Days 23% Days 23% <15 Days 22% At Least 45 Days 19% Retroactive 13% More than half of contract changes received less than 30 days before effective date Copyright 2013 Health Industry Distributors Assn.

Retroactive Pricing Updates Make Timely Invoicing Difficult 1-7 days retroactive days retroactive 8-14 days retroactive >30 days retroactive Source: 2011 HIDA Survey Just how late are retroactive change notices? Copyright 2013 Health Industry Distributors Assn.

Most Changes Communicated from Manufacturer to Distributor Via Excel, Not EDI 5% 9% 86% Hard copy EDI 845 ed Excel spreadsheet Source: 2011 HIDA Survey Method of change notification Copyright 2013 Health Industry Distributors Assn.

Pressure on Provider Margins Drives Greater Focus Expected revenue decline among providers 70% Source: McKinsey & Company / HIDA Thought Leaders Interviews, % Up to 10% 21-30% 20% 10% Copyright 2013 Health Industry Distributors Assn.

 Distributors are usually contractually required to give 30-day price change notice to customers.  All parties need time to load pricing.  Insufficient notice results in price mismatches and costly rework. Make Sure Distributors Get 45-Day Advance Price Change Notification Copyright 2013 Health Industry Distributors Assn.

 Make sure all parties understand when contracts are expiring and get in front of them.  Ask manufacturers to “auto- extend” existing contracts for at least 60 days when new ones start dates are likely to be delayed. So Begin Negotiations Early! Copyright 2013 Health Industry Distributors Assn.

Negotiate “Landed” Pricing  Add-on freight charges to distributors cause price mismatches.  Contract for a “delivered” price to ensure price matching. Copyright 2013 Health Industry Distributors Assn.

Support Industry Standards  Commit to using GS1 standards within your organization.  Push for adoption of GS1 by your manufacturers. Copyright 2013 Health Industry Distributors Assn.

Desired Results Require Systemic Transformation Copyright 2013 Health Industry Distributors Assn.

The Old Tools Aren’t Enough Copyright 2013 Health Industry Distributors Assn.

The times we are in are unpredictable, but these are the times when transformative change can actually happen. – Healthcare CEO

Copyright 2013 Health Industry Distributors Assn.

Steve Inacker, President Hospital Sales and Services, Medical Segment Cardinal Health Bill Abrams, President Distributed Products Medline Industries, Inc.