YouTube: youtube.com/watch?v=jwEc749LtGs
Healthcare is undergoing a significant shift. Procedures that once happened exclusively in hospitals are increasingly moving to surgery centers, physician offices, and other ambulatory settings. For MedTech companies, this migration creates both risk and opportunity. The risk lies in pricing erosion and channel confusion. The opportunity lies in a growing market segment that demands its own strategy.
In this episode, Dan Toomey breaks down what manufacturers need to understand about this transition, and more importantly, how to protect your pricing and position yourself for growth.
Understanding the Migration
The movement from acute to ambulatory care is accelerating for several reasons. Ambulatory settings offer better reimbursement economics, faster turnaround times, and fewer operational complexities than traditional hospital environments. Hospitals themselves are pushing procedures out because, as Dan notes, "everybody knows that the hospital is so expensive to keep someone there."
For manufacturers, the challenge begins with visibility. Many organizations structure their sales teams so that national accounts focus on hospitals while the non-acute space stays with a separate group. This creates gaps. When procedures migrate, so does spend, and if your contracting strategy does not account for this shift, you may find yourself losing volume or margin without even realizing what happened.
The Affiliate Pricing Trap
One of the biggest risks Dan identifies involves contract language around affiliates. When a surgery center or physician office is wholly owned by a hospital system, it typically falls under the same contract umbrella. Pricing parity and SKU alignment carry over naturally. But when facilities are affiliated rather than owned, complexity emerges.
Affiliated facilities often gain visibility into hospital pricing and believe they deserve the same rates. Your contract language may even grant them that access. Dan's advice is direct: read your contracts carefully during negotiation. Understand whether pricing extends to members only, or to members and affiliates. If possible, carve out affiliates to protect your pricing structure.
"Don't let someone dictate your best volume price. Your contract was built around volume, around commitments, around tier alignments. Just because they are getting business from the hospital doesn't mean you have to give them your absolute best price." - Dan Toomey
The math matters here. If a large health system earns your best tier through significant volume commitments, their affiliates performing one surgery per week should not automatically receive the same pricing. Push back. Carve out. Protect the integrity of your tier structure.
Distribution Channel Complications
The shift to ambulatory settings often means a shift in distribution pathways. Your hospital customers may purchase through Cardinal, but their affiliated surgery centers might work with McKesson or another distributor. These are different business models with different fee structures and rebate arrangements.
Dan emphasizes that companies need to understand what this shift means operationally. Does it affect commissions? Does it change your EBITDA because of different distributor fees? Are your tracings accurate so your sales team gets proper credit? These are questions to address proactively rather than discovering problems after revenue has already migrated.
Work with your distribution partners to understand the setup. Engage your contracting team to clarify how supply chain will flow. The worst outcome is watching your hospital sales decline while your non-acute rep appears to be crushing it, when in reality, it was simply a transfer of existing business to a different facility and channel.
Having the Hard Conversations
Protecting your pricing often requires uncomfortable discussions. Dan recommends working with your contracting manager at the IDN level to understand the affiliate list and where business is migrating. Ask directly: how many facilities are you moving procedures to, and how will they handle purchasing?
If you are mid-cycle and discover that affiliates are accessing pricing they should not receive, go to your GPO contract manager. This is part of the relationship and part of the value you receive from paying fees.
"You can't overlook the value that they bring to you every day. When you're struggling with something, go to them and say, 'We've got to figure this out. I know I can't renegotiate my contract, but these facilities do not count.'" - Dan Toomey
Dan shares an example from his experience involving Puerto Rico. When orders started bypassing international distribution channels and creating significant cost problems, his team made the case to the GPO with data showing why the situation was unsustainable. The result was a contract amendment that carved out Puerto Rico with specific terms. The lesson: come with facts, show the impact on your business, and work collaboratively toward a solution.
The Opportunity in Non-Acute
While the risks are real, so is the opportunity. The non-acute market represents roughly 40% of Premier spend. This is not a niche segment. It is a substantial and growing piece of the healthcare landscape.
Each major GPO has dedicated organizations focused on this space. Vizient has Provista. Premier has Innovatix. HealthTrust has AdvantageTrust, plus various surgery center groups and physician office programs. These are separate contracting teams with their own strategies and timelines.
Dan suggests thinking about this strategically. You might create a continuum of care tier in your national contracts that addresses affiliated facilities without giving away your best pricing. Or you might pursue separate contracts specifically designed for the non-acute space. Either approach requires intentional engagement with the right GPO teams.
Leveraging RPCs for Market Insight
Regional Purchasing Coalitions and aggregation groups also play a role here. Systems and purchasing coalitions such as Yankee Alliance, Capstone, Tenet, and Trinity have their own acute and non-acute membership bases. They receive data and tools from their parent GPOs, but they also have specific knowledge about what their individual members are doing.
Ask your RPC contacts directly: what are you doing for this migration to the non-acute space? How are you handling pricing parity between national and non-acute contracts? What channels are you using? Their answers can help you understand regional dynamics and test strategies before committing to national terms.
"If you're struggling a little with the GPO, not quite sure where to start, and you have a good relationship with a large IDN or local GPO, go to them. Ask how they're managing their non-acute space and what you can do to be more forward with them." - Dan Toomey
Key Takeaways
- Understand your contract language. Review whether pricing extends to "members and affiliates" or just members. Carve out affiliates during negotiation when possible.
- Protect your tier structure. Volume commitments earn pricing tiers. Affiliates doing minimal volume should not automatically receive your best rates.
- Map your distribution channels. Different facilities may use different distributors with different fee structures. Understand the impact on your margins and commissions.
- Work with your GPO contacts mid-cycle. If affiliate pricing is hurting your business, bring data and request clarification or carve-outs even before the next negotiation window.
- Engage GPO non-acute teams separately. Provista, Innovatix, and AdvantageTrust have their own strategies. Build relationships with the people managing that space.
- Use RPCs for insight and testing. Regional groups know their members' migration patterns and can help you pilot strategies before national rollout.
Navigating the shift from acute to ambulatory? Contact MedBridge Advisors to discuss how to protect your pricing and position yourself in the non-acute space.
You might also find these episodes valuable:
- Episode 22: Portfolio Selling in Healthcare - When you are managing contracts across acute and non-acute settings, portfolio strategy becomes essential.
- Episode 18: 5 Back Office Essentials Before Launching a GPO Contract - The roster management section is especially relevant for tracking class-of-trade changes as procedures migrate.
- Episode 6: Stuck in the Middle: How to Win GPO and IDN Contracts - Regional purchasing coalitions play a role in the non-acute strategy Dan describes.