Collaborate With Your Distributor To Ensure Pricing Accuracy

December 2019

Prime Vendor: Getting the Most from Your Most Important Supplier

By Elizabeth Hilla
HIDA Director of Industry Affairs

Getting To More Accurate Contract Pricing

As a supply chain leader, you spend many hours finding the best contracts, tiers and prices for the products you purchase. So, it’s frustrating when you get an invoice and find that a price is incorrect. Maybe your organization didn’t get assigned to the right tier, or maybe it’s still the old pricing even though a new deal has been inked. You or your team then spend more hours investigating the error, contacting the supplier and getting the problem fixed. Whew.

Distributors find these problems equally frustrating. After all, their customers trust them to make sure the pricing on their invoices is correct – and blame them when errors occur (even if it’s a last-minute price change or even a one-off write-in change to a contract requirement). To ensure pricing accuracy, both suppliers and providers must invest in a well-coordinated contract administration process – a resource-intensive investment that sucks up resources from other supply chain priorities.

Building The Three Critical Pillars

That’s why my organization, along with leaders from manufacturers, GPOs and health systems, has been working on issues related to contract administration and pricing accuracy for many years. We believe that price synchronization – meaning that all trading partners including the manufacturer, GPO, distributor and provider agree on what the price should be for a product going to a specific customer – is built on three critical pillars.

Pillar 1: Automation

Automation means that computers can talk to computers so that everyone’s systems agree. Manual work leads to mistakes and mismatches. Using already available standards like EDI 832 help alleviate this manual entry. Automation requires adoption of standard business processes. When trading partners do things in non-standard ways – for instance, adding complicated, non-automatable terms to a contract – errors are likely.

Pillar 2: Data standards

Automation is easier when computers (and their users) speak a common language through data standards including location identifiers (specifically, HINs, DEAs and GLNs) and product identifiers (such as those addressed via UDI adoption).

Without broad adoption of such identifiers, the industry depends on complicated cross-reference files to match the provider’s location or product number to the supplier’s numbering system. These systems are time-consuming to maintain, add costs, and increase the opportunities for errors.

Pillar 3: Timing

All trading partners must agree on the contract effective date to ensure price matching.

The effective date should allow enough time for all systems to be updated with the new pricing. In the absence of full automation and data standards (see pillars 1 and 2), the industry standard is that distributors receive 45 days’ notice of pricing changes prior to the effective date, to allow them to notify their customers and all parties to update their systems.

Retroactive pricing almost guarantees price mismatches and rework. Managing and sticking to sourcing calendars will greatly mitigate the risk of an eleventh-hour price load need.

Connecting The Dots

Another critical factor is communication. Organizations that achieve strong pricing accuracy metrics typically work very closely with their distributor partners on all aspects of contract price administration.

I encourage you to visit to access the Improving Pricing Accuracy white paper, which offers best-practice recommendations around these three pillars – automation, standards and timeliness. While the publication primarily focuses on ways distributors, manufacturers and GPOs can enhance contract performance and streamline overall stakeholder communications, providers can also benefit from learning more about what our industry is doing to solve this challenging problem.

To better understand the challenges of pricing accuracy across the supply chain, I invite you to participate in the Healthcare Supply Chain Collaborative’s Contract Administration Conference on Feb. 4-5, 2020, in Miami, Florida. Participants will share case studies demonstrating ways to improve pricing accuracy and help develop additional best practices to recommend to the industry.