Acquisition Modernization: Operationalizing the Contract to Transform Healthcare Supply Chain
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Ted Dagnal, Strategic Account Director
In the healthcare sector, the supply chain stands as a pivotal component for ensuring efficiency, cost-effectiveness and innovation. In this article, government healthcare supply chain expert, Ted Dagnal, discusses how operationalizing contracts can modernize acquisition, highlighting challenges and underscoring its transformative potential for the healthcare supply chain.
Table of Contents
1. Streamlining and improving the acquisition process
Readers who are members of the federal acquisition community have most likely heard of the many modernization projects and initiatives active across various agencies with the goals of streamlining and improving the acquisition process. This reform is essential to the industry and was validated by the passing of Public Law 117-88, Promoting Rigorous and Innovative Cost Efficiencies for Federal Procurement and Acquisitions Act of 2021, designed to promote innovative acquisition techniques and procurement strategies.
This law provides small businesses with more opportunities to contract with the federal government, creating a more competitive and open market which, in turn, provides more benefits to federal services. Federal agencies had been limited to a small number of preapproved contractors which restricted price competition and commercial sector innovation.
The law reaches farther than just the government agencies themselves; it allows market innovation to determine the true cost and cost saving potential, which means the taxpayer also benefits. This is a drastic change, but one that for individual contributors creates greater efficiency and synergies across the federal government.
Department of Health and Human Services (HHS) is also developing a program that will accelerate the acquisition process by leveraging blockchain and AI to give acquisitions team access to data in real-time. This program, the Accelerate program, has a goal to reduce acquisition lifecycle and provide HHS acquisition teams the necessary information to make confident contracting decisions.
Both the new law and HHS plan are designed to save time and money and give the government better negotiating power. These initiatives are a great start to saving taxpayer dollars and providing more businesses and technology solutions with access to the government acquisition process. However, one of the most important steps in the process, “operationalizing” the new contract, is missing from both plans.
2. Selecting the right vendor
The process of vendor selection or “finding the best fit” is a complicated one, but with good partners agencies can be guided through their RFP processes to ensure proper partnership. Agencies like Veterans Affairs (VA) leveraged a robust partnership between GHX (formerly Prodigo Solutions), CVP Corp and Booz Allen Hamilton to provide access to their contract portfolio so their community can see what is on a valid VA contract, drive contract compliance, and accelerate and maintain data standards adoption.
Once the acquisition process is done and the award has been made, the logical next step is to make the goods or services available to the government purchasing community. That important piece is unfortunately an afterthought in most cases. If one of the goals of Public Law No: 117-88 is to achieve cost savings, and not just in the acquisition process, then operationalizing the new contract must be a well thought out and deliberate final step.
It is important to understand exactly what “operationalizing” a contract means. It starts with understanding how an organization buys goods and services and the systems that facilitates those processes. Ideally, the goods and services are available in the front-end purchasing system that buyers and purchasing agents use to create a purchase order or work order.
3. The challenge of realizing savings
However, the limitations of some of the legacy systems that government agencies use to make purchases lack the ability to ingest, store and update new items or services. The result is that new pricing agreements in the contracts go unnoticed and become “out of sight, out of mind” when it comes times to create a purchase order or an order with a government purchase card.
If the price or other terms and conditions are not updated in the front-end purchasing system, the opportunity to realize the savings the new agreement has promised becomes more difficult. It’s common to hear a lot of rhetoric about how much a new contract is going to save the taxpayer and the government but one thing that is rarely addressed is exactly how that savings will be realized from a tactical buying perspective. Relying on the vendor to track and report savings is not the best course of action in any scenario. Contract compliance and utilization is up to the buy side of the equation – not the sell side.
Fortunately, there are technical solutions to this difficult problem. Hosting the contract and the contract line-items in a central repository or database is a good first step, but if that system is not accessible to the purchasing team or not connected to the front-end purchasing system the opportunity for savings is in jeopardy.
To fully operationalize a contract, the price and the item attributes required to create a purchase order (part number, manufacture or vendor name, unit of measure, price, etc.) at a minimum must be visible and available to the purchasing agent at the point of requisition or when a purchase order is created. That seems like a simple concept, yet it is not as easy as it sounds, particularly when you have an outdated system that is not nimble or scalable enough to keep contract and price information updated in a timely manner.
4. The need to modernize systems
Most purchasing systems struggle with price updates when a new contract is signed because they either lack the ability to ingest contract catalogs efficiently or the process to update pricing and item data is difficult and cumbersome. The impact of these limitations is notable – GHX data suggests that greater than 60% of identified/negotiated cost savings are never realized over the life of the contract due to an inability to control purchasing behavior and monitor savings in real-time.
A large contributor to that number is the inability to get new contracts into the purchasing channels. A platform that can ingest new and existing contract catalogs through an automated extract-translate- and-load (ETL) process and deliver the right content to the purchasing team is the catalyst to realizing savings over the life of the agreement. There are many options in the market, and it is paramount to look for platforms with a good user experience and robust features and functions.
It is encouraging to see the efforts being made to modernize the government acquisition process and they will save a lot of time and money and open opportunities to small and disadvantaged businesses. However, if those efforts do not include a way to make the new agreement available to purchasing agents who do the tactical buying for the government the true savings numbers will not be realized.
Visit ghx.com/government-solutions to learn how GHX offers federal agencies the power of the leading healthcare supply chain solutions to deliver better care at a lower cost.