Individual contracts secure market share - group purchasing market

Individual contracts secure market share

The group purchasing market is maturing and manufacturers are re-examining how they can expand market share by dealing directly with large hospitals in addition to purchasing groups.

As large hospitals are becoming more sophisticated in their expectations, manufacturers are responding by developing special programs to meet the needs of their larger customers.

Prior to the growth of group purchasing, many companies had established individual contracts with hospitals, giving those hospitals better prices than were available through regular distribution channels. When group contracting became stronger, many manufacturers and distributors replaced individual contracts with group contracts, making better prices available to a broader constituency. The manufacturer's goal was increased market share.

Now, in a period of rising prices for medical-surgical products, many of the larger hospitals are asking for better deals than are available through the group contracts. Major medical centers are seeking to strike special deals with the manufacturer because of their size and the market volume they command.

Special deals

Special deals can be rewarding for the manufacturer that hasn't been able to penetrate a hospital or has found that the group contract doesn't accommodate many of its products. They can enable the manufacturer to create a long term bond that will be difficult for the competition to break and that will provide the manufacturer with added clout at the hospital and perhaps the affiliated groups the hospital works with.

Though this concept is not completely new, the emphasis has now shifted with individual hospital contracts playing a strategic role in the enhancement of the group contract that may already be in place. For example, in the major groups, there are many 500-plus-bed hospitals that are able to obtain contracts with manufacturers at better prices than are available to a group of uncommitted hospitals.

A potential problem for a manufacturer is that the CEO of a hospital may be committed to the group and may not wish to set up individual deals with a vendor and risk the hospital's relationship with its group purchasing organization. However, if a manufacturer can develop a corporate relationship with a hospital, perhaps beyond the offerings of the group contract, it can then enhance its position with both the group and the hospital.

Thus, if a hospital is a member of VHA Supply Co., and the hospital is not taking advantage of the contract, the manufacturer can offer a corporate agreement covering its product lines beyond what the hospital has available through its group purchasing contract. Then the manufacturer can introduce the balance of its product line and increase its overall sales. (The vendor can apply the pricing of the VHA Supply contract, pay the appropriate administrative fees to the VHA and sell the balance of its product line under a corporate contract to the hospital.)

The result is that the hospital stays in compliance with its purchasing group and buys the balance of the vendor's product line at attractive prices. The manufacturer is pleased with the opportunity to honor the contract for the items that are on contract and gains new business through the corporate contract that had previously gone to the competition.

Value added services

One advantage the hospital might gain through the individual corporate contract is access to value added services the vendor could not afford to give to the purchasing group as a whole, but could to the individual large hospital customer. It has also received group pricing and gained access to the balance of the vendor's products at significant discounts for commitment guarantees.

Although this may seem a logical process, the advancement of corporate contracts on a hospital basis is the growing concern of the groups. There is a direct threat to the groups in that the major manufacturers and pharmaceuticals see this as a way to penetrate individual accounts and accommodate the groups and increase market share in major hospital accounts.

How important is this? Every major manufacturer recognizes both the limitations of the product offerings of the groups and the desire of the groups to build relationships with suppliers and members.

However, hospitals have the opportunity to strengthen their corporate relationships with manufacturers they have worked with historically. This relationship, though, has been affected by the advancement of the groups and their ability to put themselves between suppliers and customers.

With the evolution of the groups and the understanding by hospitals and vendors of their overall roles in the group relationship, it is important to recognize that the relationship is crucial to the development of individual hospital contracts.

The group is first

The group is the first stop. Then, look at your most important accounts to identify opportunities to share new ideas and provide value added services.

It is important to accommodate the groups and pay the fees for their portion of contracted business.

The final step is to pursue business that is open to you.

COPYRIGHT 1990 J.B. Lippincott Company
COPYRIGHT 2004 Gale Group