To support their overall financial performance, many hospitals lean heavily on the margins of specialty procedures that include medical implants, e.g., total joint arthroplasty, cardiac rhythm management, and spinal implant procedures. However, implant costs can sometimes make or break the profitability of a given procedure. To remain profitable, organizations must keep a keen eye on both the revenues and costs associated with these procedures, especially amid evolving tariffs and trade policies that will likely contribute to inflation and volatility in the cost of supplies.
In our experience, a holistic approach to implant pricing can help hospitals maintain financial discipline and achieve healthier margins. This approach involves several key steps, which we explore below.
Get the Important Facts First
A holistic approach to implant pricing focuses on the overall profitability of the procedures rather than simply reducing implant costs. This involves gathering key facts, including:
- Which physicians are using which implants, and how often
- Reimbursement per case by payor, as well as the payor mix
- Costs of staffing, medical and surgical supplies, pharmacy, imaging, and any other direct costs
Knowing this information is the necessary starting point to identify opportunities for margin improvement.
Focus on Your Internal Margin Improvement Cycle
Once you know all the factors contributing to the margin of an implant procedure case, margin improvement becomes a cycle. For example, during your fact gathering, you may identify clinical variance from provider to provider, with some using higher-cost components. As a result, you may decide to pursue standardization efforts to address this variance. After implementing any internal changes, it’s crucial to review the key facts again to understand how your efforts have affected overall margins for the procedure and determine your targets for further cost reduction. Often, this margin improvement process will lead you to the vendor to negotiate better pricing.
Benchmark Your Implant Pricing
As you prepare for negotiations with vendors, benchmarking is critical to compare your implant pricing to what the rest of the market is paying and help you set a realistic target price. It’s important to look at multiple data sources—including group purchasing organizations, independent companies, and publicly reported data—to understand market pricing better and avoid limiting your opportunities for savings. A trusted advisor like Forvis Mazars can help you access a wide range of benchmarking data and utilize tools to glean actionable insights.
Stay Focused on the Margin During Vendor Negotiations
Once you’ve developed your target price and are ready to meet with the vendor, it’s essential to keep in mind that the real focus of negotiations should remain on the total margin of the case. While a vendor may be willing to meet your target price, it often comes with a catch. For example, they may want to move you to a newer technology or for you to use their equipment, or they may offer to finance the lower price through rebates that will help you avoid the capital outlay if you spend a certain amount.
This is where a holistic approach is critical. Instead of focusing on price alone, you must carefully consider what else comes with the technology or equipment—typically, more costs, such as a maintenance contract and separate supplies that must be used with the equipment. Once you factor in these costs, you may find they offset what you thought you saved in your pricing negotiations. Targeting a capitated price that includes anything else the vendor offers will help you understand the big-picture impact on your margin and focus on attaining your desired outcome from the negotiation.
How Forvis Mazars Can Help
Our non-labor cost management team at Forvis Mazars has helped healthcare organizations identify and execute cost savings and margin improvement opportunities for more than three decades. We provide insights into market rates, negotiating strategies, and physician and vendor engagement to help you maintain financial discipline in pursuit of achieving health for your organization and those you serve.
If you have questions or need assistance with your approach to implant pricing, reach out to our team today.