Is Selling Total Cost of Ownership (TCO) a Waste of Time?

This past Wednesday, I moderated a panel of GPO executives at the HSCA Expo in Orlando. The subject matter centered on “Strengthening Ties between GPOs and Suppliers.” Senior executives from Amerinet, Novation, Healthtrust Purchasing Group, Premier and MedAssets comprised the panel and the discussion was lively.

There were several takeaways from the discussion that I will write about in future posts, as all of the panelists were journeymen, but the one that really grabbed me, especially as a former supplier –and a salesman– were comments made by Dave Edwards, Premier’s VP of Supplier Relations and Business Development.

Here’s the set-up:

A supplier in the audience made a comment that questioned the integrity of total cost of ownership (TCO). At the end of the day, “does anyone really care?” The questioner pointed out that when you’re on the “selling end” of a value proposition (e.g. when you’re a supplier with a new product) and you try to sell TCO, eyes quickly glaze over and the conversation inevitably erodes into a discussion about price. His comment was well taken. “Everyone talks a good game when it comes to TCO, but at the end of the day, shorter patient stays, better outcomes, etc., –some of the most powerful elements of TCO– ultimately pale in comparison to price.”  In short, he pointed out that price always seems to trump TCO despite all the rhetoric to the contrary. And the gentleman had an excellent point.

But I thought that Dave offered up a surprisingly strong and honest response. His comments are paraphrased below:

“Suppliers need to know that from where we (the GPOs) sit, product benefit claims made by new suppliers are a dime a dozen. We hear it everyday. If I were a supplier, I would be doing everything in my power to build a highly differentiated value proposition —something designed to get our attention.  Something novel that recognizes I see salesmen hawking ‘the latest and greatest’ everyday. Perhaps a creative presentation that provides me with clear, concise, documented evidence of TCO versus the typically well-intended, but unsubstantiated claims –that would be a great start. Perhaps an actual plan that spells out the sought after collaboration versus a commitment to figure it out later.” Dave continued: “As discussed earlier today, we can’t even get some of our would-be suppliers to complete our standard-issue RFP…”

Dave’s comments caught my attention. They rang true and and the other panelists were lock-step behind him. It caused me to stop and reflect. I put my supplier hat back on and vividly recalled my own selling behavior. My first priority was to find an inside track –a short cut. Next? Getting a meeting scheduled where samples could be exchanged. Then, a discussion about price and quality –and relentless follow up. It worked about 30% of the time. Certainly not an optimal approach.

I have to agree with Dave’s sentiments. Suppliers seeking a break through opportunity with a GPO would be well-served to think more creatively and to show up far more thoroughly prepared in advance of “their shot.” Because it’s not just about having the goods anymore. And it’s not all about more professional salesmanship. And TCO can’t be dead because because CMS reimbursement metrics are going to be tied directly to the kinds of value that define it. Frankly, isn’t it all of the above? If I lose this job and end up on the selling gridiron again, I won’t just suggest to a customer that a relationship exists between my product’s stellar TCO and CMS’s value based reimbursement metrics. I would show up with the dots already connected.

—Tom Finn




  • Fred J. Pane:

    Tom, back in 2004, we started to look at the TCO and ROI associated with Drugs and Devices, when I was an Administrator in a large teaching hospital system in Pa. Our GPO didn’t seem to think at that time, that we should move into a Value Based/Risk Contract, where clinical outcomes should be part of a contract with the manufacture. I have covered the topic of ROI with clinical products over the last 8 years. There is more to a GPO Contract, then generating BEST PRICE and manufacturers want more than a market share contract. Maybe not every ACO/IDN/IHN is ready for such a contract, but it should be offered and if the ACO/IDN/IHN has the clinical and financial capabilities to measure the Balanced Scorecard impact, then it should be initiated and the manufacture be held accountable if it doesn’t demonstrate the TCO. I have met with some ACOs and they are ready to bring clinical and financial outcomes beyond what they are receiving currently from their GPOs.

Join the Conversation

* Required fields  [email address will not be published]