A Stepwise Replicable Approach to Negotiating Value-driven Supply Chain Contracts for Orthobiologics

Abstract

Introduction:Orthobiologics are increasingly used to augment healing of tissues. Despite growing demand for orthobiologic products, many health systems do not enjoy substantial savings expected with high-volume purchases. The primary goal of this study was to evaluate an institutional program designed to (1) prioritize high-value orthobiologics and (2) incentivize vendor participation in value-driven contractual programs.Methods:A three-step approach was used to reduce costs through optimization of orthobiologics supply chain. First, surgeons with orthobiologics expertise were engaged in key supply chain purchasing decisions. Second, eight orthobiologics formulary categories were defined. Capitated pricing expectations were established for each product category. Capitated pricing expectations were established for each product using institutional invoice data and market pricing data. In comparison with similar institutions, products offered by multiple vendors were priced at a lower benchmark (10th percentile of market price) than more rare products priced at the 25th percentile of the market price. Pricing expectations were transparent to vendors. Third, a competitive bidding process required vendors to submit pricing proposals for products. Clinicians and supply chain leaders jointly awarded contracts to vendors that met pricing expectations.Results:Compared with our projected estimate of $423,946 savings using capitated product prices, our actual annual savings was $542,216. Seventy-nine percent of savings came from allograft products. Although the number of total vendors decreased from 14 to 11, each of the nine returning vendors received a larger, three-year institutional contract. Average pricing decreased across seven of the eight formulary categories.Discussion:This study demonstrates a three-step replicable approach to increase institutional savings for orthobiologic products, engaging clinician experts, and strengthening relationships with select vendors. Vendor consolidation permits a symbiotic win-win relationship: Health systems achieve increased value by reducing unnecessary complexity of multiple contracts, and vendors obtain larger contracts with increased market share.Level of evidence:Level IV study