Optimizing procurement operations is essential to improving the financial health of hospitals and supporting their missions to deliver quality care. It’s no secret that procurement processes are notoriously complex. This stems from dealing with multiple suppliers, navigating an extensive catalog of products that contain hundreds of thousands of SKUs, and managing myriad contracts alongside inventory. The stakes of not simplifying these processes are high. Inefficiencies breed a lack of transparency, leading to inconsistencies in pricing, off-contract spending, and limited visibility into inventory levels. Any procurement chain disruption then requires intensive labor and time to rectify the situation, inflating costs for both suppliers and providers.

The pathway to heightened profitability and operational efficiency doesn’t require compromising the quality of products used to deliver patient care or the care level provided. Instead, companies must prioritize adopting more modern, advanced technologies to enable greater visibility and automation across the order-to-pay cycle, benefiting suppliers, providers, and patients. Automating and digitizing procurement delivers greater operational efficiency and accuracy. It also gives providers the data they need to reduce unnecessary spending and support cost-saving initiatives while optimizing cash flow. Medical device companies spend an average of 5.1% of revenue on R&D for new product introductions, according to industry data. Therefore, it’s critical that commercial execution is efficient and effective to generate revenue. 

Understanding the Current Procurement Landscape

Over the past 20 years, healthcare procurement has slowly evolved from a paper-based system to a more digital approach. The progress toward “punch-out” technology for procurement has been encouraging. Punch-out procurement allows buyers to access supplier catalogs and place orders from their preferred suppliers directly from their procurement systems rather than using multiple e-commerce sites. This streamlines and speeds the purchasing process and improves accuracy and efficiency across the board.

The emergence of hospital-specific digital marketplaces has further revolutionized procurement by aggregating contract-compliant items and pricing into a modern e-commerce shopping tool. With the help of online platforms, hospitals can now simplify the procurement experience for thousands of requisitioners by making it easy for them to find approved suppliers, items, and prices so they can quickly place orders. Some organizations have even created independent marketplaces tailored to a specific clinical department or supplier, enabling some control over what is being ordered.

Despite these advancements, many organizations are still in the early stages of their automation and digital transformation journey. The future of healthcare procurement demands a significant leap forward. Companies must transition from their current fragmented and largely manual systems toward a true e-commerce ecosystem, where procurement goals align with value analysis commitments and expectations. Doing so will require significant collaboration between suppliers and providers to furnish all stakeholders with a more compliant and transparent outcome.

Modernizing the Supply Chain Through the Benefits of Directed Buying

Directed buying is a strategic approach in which hospitals limit purchases to specific, vetted suppliers of items approved for use within the health system and where supply chains have the tools to shape demand across thousands of daily purchasing decisions in their organizations. “Getting products on contract” involves significant time and effort, creating financial models for volume-based pricing tiers, communicating clinical performance, and negotiating contract terms. Additionally, directed buying helps hospital staff who order supplies to better understand which product to purchase to realize savings. For providers, this means operationalizing their supplier contracts; for suppliers, this means achieving planned unit volumes—a true win-win for the healthcare ecosystem.

To enable directed buying, the industry must move toward an integrated e-commerce platform. This would function as a unified purchasing portal for clinical and non-clinical supplies, accessible through various means, including punch-out connectivity with ERP systems and online catalogs. This would make it easier for buyers to consistently choose the right products from trusted sources, reinforcing item and price compliance across the supply chain. It would also improve visibility into inventory status, emerging demand signals, replenishment needs, recalls, and appropriate product substitutes.

Directed buying depends on strong data management practices focused on maintaining item formularies with complete, accurate item and price data sourced from the contract source of truth. At its core, there is a Virtual Item Master of items approved for use, contracted, and available for purchase by the health system. This enables a hospital purchasing manager to use a marketplace to see the contracted or approved 50 SKUs from a specific supplier rather than all of the SKUs. The system reduces the likelihood of purchasing errors by narrowing the options because buyers don’t have to sort through thousands of SKUs to find the needed product.

With an e-commerce platform that supports direct buying in place, healthcare professionals can rethink how suppliers help hospitals stock for standard procedures such as hip replacement and breast augmentation surgeries. By establishing formularies, healthcare facilities can standardize the selection and use of medical devices to help ensure the availability of safe, effective, and cost-efficient options. For example, a patient undergoing a hip replacement may require a specific type of hip, but many other products used in the procedure are standard. They can be ordered together ahead of time, ensuring those items are being purchased and are on contract. For suppliers, this streamlined, contract-compliant approach for standard procedures will help drive down costs and improve their days sales outstanding.

This matters because how medical devices are supplied to operating rooms today will not be sustainable in the long run. It is impossible for sales representatives to be present for every procedure in every hospital. There will still be complex surgeries with variable product needs, such as spine, trauma, and foot/ankle surgeries that may require a varying number of rods, screws, plates, and grafts. By taking a more standardized approach, companies can eliminate costs and process inefficiencies. Similarly, the practice of shipping large quantities of products only to have many returned highlights a need for refining these inefficient supply chain processes.

E-commerce enablement is especially critical as the medtech industry adapts to the rise of alternative care models like ambulatory surgery centers (ASCs), whose projected value will reach $59.3 billion by 2028 and procedure volumes will hit 22% by 2033, Health Industry Distributors Association statistics indicate. One of the significant drivers of ASC growth is the increasing number of implant procedures, such as hip or knee replacements, performed in these facilities. To help ensure long-term profitability, ASCs must focus on streamlining their supply chain management processes or risk decreased profitability for individual cases. Directed buying simplifies procurement, saving valuable time and resources while ensuring access to necessary medical supplies.

How to Prepare for Procurement’s Future

Suppliers can take several proactive steps to transition toward a fully digital e-commerce experience. First, it is crucial to focus on managing and organizing data to help provide information across different systems that is clean, complete, and accurate. This encompasses real-time data related to inventory positions, detailed product information, high-quality images, and contract pricing, all of which play a critical role in helping to improve the customer experience that ensures e-commerce’s success. Second, suppliers should ensure their systems are ready for seamless API integration to facilitate efficient data exchange and connectivity with other systems.

The evolution of healthcare procurement toward e-commerce enablement and directed buying presents a significant opportunity for the medtech industry to streamline processes, reduce costs, and improve patient care. To help the industry push past the status quo, suppliers must leverage advanced technologies to create a unified, industry-wide e-commerce platform that will drive cost and labor efficiency, standardize procurement practices, enforce compliance, and help ensure the availability of much-needed medical supplies when patients need them. 

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Denise Odenkirk is a vice president at GHX, working with manufacturers, distributors, and hospitals to improve their business processes. Odenkirk brings more than 20 years of experience in healthcare from a manufacturing, distribution, and third-party logistics perspective. Her career began in IT leadership roles at Warner-Lambert and Aventis and expanded to include operations while at Bracco Diagnostics, Owens & Minor, and Symmetry Surgical. Her passion is to improve healthcare supply chain business processes and help companies improve their overall healthcare supply chain efficiency.