The biggest fear in dealing with most sales people is if you’re getting a good deal. When purchasing a vehicle or furniture from a sales person, you want to have a good feeling and truly believe you’re getting a good deal. How many times have you walked away from a big purchase feeling like you’ve missed out on some savings? We’ve all been there right?
Working with a trustworthy salesperson who is knowledgeable of their products and understands your business will provide a true partnership - working together for the best interest of the patient and their family. Just like any vendor you choose to partner with, there may be some things they’re not telling you that are vital in the understanding of their business and how they provide service to your organization.
4 things your medical supplier is hiding from you.
1. Medical suppliers that offer their own private label products with their name as the manufacturer push these products because typically the rep is highly incentivized to do so by their parent company.
The rep is motivated by higher compensations because their company makes more money on these items because of how they are manufactured. These items are typically made overseas in bulk with little or no quality control. Often times, the items lots are manufactured in different plants making the quality inconsistent. The distributor will shop around for the best price and cut corners to increase their margins. You can compare the same product you received last month from the product you received this month and have a slightly different color, shape, size etc. For example, comparing private label gloves this month to the same item received two months ago, you will likely notice that they have a slightly different color, thickness, and texture. It is best to utilize name brand products that are manufactured in the United States or by reputable companies who utilize manufacturing plants that offer the highest quality control and stand behind their products. It is important to note that while using private label products can appear to offer some cost savings, it may actually cause you to use more product overtime because of the lack in quality, therefore costing you more money and taking time away from your clinician’s other patient care visits. Name brand products also offer additional support from the sales reps providing value added services such as education, product support, and training for consistency of care. Working with a medical distributor that offers name brand quality products will prove to save you money through quality, support, education, and typically the individual cost of the product as well.
2. Just because you’re not being charged shipping on your invoices, doesn’t mean you’re not paying for it.
Shipping costs are the second highest cost of doing business for a medical distributor next to the cost of the product. Typically, about 10% of the cost of each order is the cost the distributor pays for shipping in the hospice/long term care market. Manufacturers also charge shipping to the distributor when the distributor doesn’t meet the minimum order charges, which range from a few hundred dollars to $30,000. Distributors keep an order schedule with each manufacturer based on the volume into each warehouse. If they’re unable to meet minimum order for free shipping, they’ll either have to pay the shipping charge or ship into an alternate warehouse and transship the product. So even if you are not seeing shipping costs on your invoices, it is most likely still built into the cost of the product.
3. Rebate contracts play a big part in the profitability of a distributor.
Many of the products that medical suppliers sell are priced to the customers based on a rebated contract cost agreement. This means the distributor initially purchases the product from the manufacturer at a much higher cost and then must submit paperwork back to the manufacturer to receive a rebate after the product is sold to a customer to make up the difference. The rebate contract is an agreement between the distributor and the manufacturer and not typically between the customer and the manufacturer unless it’s 100% volume driven. Rebate contracts are based on either anticipated volume as a whole or by each individual customer depending what kind of contract is negotiated. Volume drives price, so if a distributor can get a large portion of their customers onto a particular product line they can negotiate a more aggressive rebate on their customers’ behalf. The distributor then passes the savings onto the customer based on these agreed contracts prior to actually receiving the rebate. It can be very problematic for the distributor if the rebate is challenged by the manufacturer. If the rebate is denied, since the product was already invoiced to the customer at the lower price the distributor actually loses money on the sale.
When a provider signs up for a Group Purchasing Organization (GPO), it allows an authorized distributor access to the GPO’s negotiated rebate contracts on the provider’s behalf. Distributors can then offer lower pricing based on these GPO contracts based on the provider’s volume commitments. GPO’s negotiate pricing with each manufacturer on a tier-level pricing structure. A hospital with high volume will receive the most aggressive pricing tier where most hospice providers may only be eligible for the first tier pricing level. Since the manufacturers control access to these rebate contracts and is based on volume, a customer can potentially be put on tier 2 or 3 one month, then be moved down to tier 1 the next, making the management of the provider’s pricing with GPO contracts very difficult and time consuming for the distributor. To become an authorized distributor and access GPO contracts, the distributor must pay fees to the GPOs based on their contracted sales. Taking all of this into consideration often times the distributor’s individually negotiated contracts are more aggressive than utilizing a GPO contract and can allow for more pricing consistency for the provider.
4. Constantly shopping around for the lowest price on individual products does not usually result in actual savings in the long run.
Spending valuable time shopping on Amazon for one item can prove to be more expensive than spending a little more money on an item from your trusted distributor partner. Remember, time is money and not only are you spending more time searching, but each invoice your company receives costs approximately $65 in internal costs for your accounts payable to process, as well as the additional time and resources spent processing the deliveries. There may also be other hidden fees associated such as order minimums and added shipping fees. Changing products without proper training and quality consistency can also cost a lot in staff time and patient outcomes. Your distributor partner is responsible for helping set your formulary, maintaining its consistency, and reviewing your usage and costs on a quarterly basis. Constantly shopping diminishes the value your distributor partner brings to your company. What is good for you is good for your distributor partner, and what is good for your distributor partner should be good for you as well. Work with someone you trust, consistently provides value, understands your business, and explains how they can save you money and help your staff provide better patient care.
Understanding your business is the most important part of a medical distributor rep and it’s best to partner with a sales person that has extensive knowledge in your particular healthcare sector. That way, they can provide you with the ultimate cost savings through their extensive knowledge and experiences.
Corporate Director Hospice Sales and Services
Concordance Healthcare Solutions