Four Keys to Building Successful Value-Based Supplier Contracts

As the market incents healthcare providers to improve outcomes, suppliers are raising their hands to go at risk with hospitals and guarantee their products’ performance. In supply chain value-based contracts (VBCs), the agreements assure clinical outcomes, such as a 30 percent reduction in CAUTI, and reimburse the product spend or the subsequent care required if results are not met.

Hospitals, for their part, are interested in risk-sharing but uncertain how to proceed. In a Premier Inc. survey of 203 c-suite leaders, nearly three out of four respondents ranked VBCs as a priority, but only 38 percent said they participate in this style of contracting with suppliers or pharmaceutical companies. The biggest deterrent is that providers have not been engaged by suppliers, according to the survey.

How a VBC Standardized a Product Category at an Ohio Hospital

Healthcare improvement company Premier connected Firelands Regional Medical Center, a 400-bed hospital in Sandusky, Ohio, and Avadim Health, a North Carolina-based supplier whose products include a skin biotherapy line for cleansing and bathing. Avadim engaged with Premier to create more strategic supply chain contracts that guarantee the positive effect of its biotherapy line on the continuum of care and total costs.

Firelands took Avadim’s product to its value analysis committee and tested it on multiple units before signing the value-based contract. Firelands’ supply chain analyst collaborated with the clinical team to compare the value of Avadim’s product to other similar ones on contract, considering price as well as outcomes and utility.

“While supply chain used to be about how much a product costs compared to competitors, it’s now about clinical evaluation, outcomes and standardization,” said Susan Cramer, Director of Infection Control and Patient Safety at Firelands, who helped pilot the product. The product performed as promised – allowing Firelands to discontinue six other therapies and standardize around one.

In its work convening hospitals and suppliers, Premier has identified four key factors that yield successful VBCs.

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