Controlling Healthcare Supply Chain Price Creep in 2020

Controlling Healthcare Supply Chain Price Creep in 2020

For healthcare supply chain teams, price creep is an omnipresent obstacle. Prices on supplies and equipment creep up frequently, and for many different reasons – some legitimate, some less so. Many healthcare systems do a poor job of reigning in price creep, chiefly because supply chain is strapped with other priorities.

If managing price creep is a challenge even in a normal year, doing so will be next to impossible during a pandemic. Yet realizing savings opportunities is more important now than ever before due to the disruption caused by COVID-19.

Controlling price creep is sometimes overlooked because of the way a hospital system classifies costs. Major cost savings initiatives are classified as savings. But savings resulting from controlling price creep are not classified as such in some hospital systems. Still, the cost savings (or perhaps cost avoidance) involved in controlling price creep add up significantly over time.

Below we’ll shine a light on this oft-neglected savings strategy. We’ll answer your questions about controlling price creep and show you how Curvo Labs helps you do it.

How Often Does Price Creep Occur?

Price creep occurs frequently – perhaps more regularly than your team realizes. Even small hospitals generally see at least one or two items increase in price each month. Sometimes these increases are negligible, but not always. A single price increase on a high-usage item can create a significant change in cost.

One hospital experienced price creep on a single type of disinfecting wipe in April. They eventually discovered that this single price change cost them an extra $10,000 per month!

There are a few specific ways that price creep can occur:

  • Contract Renewals: Because contracts are on different schedules, price changes occur throughout the year as contracts expire and are renewed (or, worse, when contracts lapse). As these contracts are typically quite large, it can be challenging to catch every instance of price creep. And it’s certainly tough to manually determine which ones are worth disputing.
  • Annual Price Increases: These will vary from manufacturer to manufacturer. And they are usually fairly small, around 3%. But, as healthcare supply chain teams know, 3% can add up quickly.

In total, we estimate that small to medium hospitals see about $200k in annual impact from price creep. That’s over $16,500 every month in price adjustments that go unchallenged!

The Challenge of Controlling Price Creep

The challenges of controlling price creep are many. For starters, price creep isn’t tracked well most of the time. Some hospitals have existing reporting systems in place that track price changes. However, many hospitals don’t. Even if your hospital system is tracking this data, supply chain may not be looking at it often enough.

Assuming your hospital system is tracking the data and is sharing it with supply chain, there are further hurdles. Working through this data and taking action on it is time-consuming. It’s more than most supply chain teams have capacity to handle.

There’s also the question of knowledge. Inexperienced supply chain team members may not realize, for example, that annual price increases aren’t set in stone. If you don’t know that something can be negotiated, you’re less likely to try.

There’s also the question of value. If the entire process (working through a contract to find all the price changes, determining which ones are worth negotiating, and engaging in negotiations with vendors) is laborious and time-consuming, it might just not seem worth it compared to other cost savings projects.

Curvo makes this process much simpler. With our solution, your team will spend far less time and effort realizing these savings, turning a low-value savings initiative into a high-value one.

Importance of Controlling Price Creep During the COVID-19 Pandemic

Controlling price creep is especially important right now during the COVID-19 pandemic. There is already plenty of general anxiety about price gouging. With whatever capacity your team has, you’re likely already looking out for signs of this. Price creep is more or less the same thing on a smaller scale. So why not look for both at once?

If your health system is overloaded with COVID-19 cases, your supply chain team is likely intently focused on COVID-related supplies – procurement is more critical than savings. With all eyes on the pandemic, it’s easy to let pricing slide elsewhere.

But of all times to guard pricing, this is the time. With elective procedures on hold or slowly coming back, many health systems are facing significant financial pressure. Do what you can to alleviate those pressures by controlling price creep right now.

Resolutions and Credits for Price Creep

Our last point of advice on avoiding price creep: beware of falling off contract. The disinfecting wipe story above is an example of this. By letting a contract lapse, that hospital system reverted from contract pricing to list pricing, nearly doubling the price of the item.

Make sure that, even during this very challenging pandemic period, you avoid letting contracts lapse. This is not just a cost avoidance strategy. When hospitals stay on top of these scenarios, they receive meaningful vendor credits that result in tangible savings. If your team doesn’t have time to manage these, find a partner who can. Curvo’s solution can alert you about expiring contracts. And our team can jump in and help ensure these scenarios are resolved and credits are received through the work of our expert services team.

Learn More About Curvo’s Solutions

Curvo Labs provides easy-to-use tools that make it quick and simple to identify price increases. If you’re interested in a deeper, more interactive discussion of how Curvo helps healthcare supply chain teams guard against price creepschedule a demo today!