The work of a medical device trading company (dealer): Problems with price negotiation using benchmarks

When medical institutions negotiate prices with wholesalers, "price benchmarks" are increasingly being used.
The word "benchmark" itself means "standard" or "level."
The benchmark used in price negotiations is essentially the price level at which other hospitals are selling the same product.
This time, I'd like to consider the advantages and disadvantages of using benchmarks in price negotiations.

Price negotiation using benchmarks

The high cost of medical equipment purchased by healthcare institutions puts a strain on hospital finances.
In recent years, there has been a growing trend among hospitals to contract with consultants to lower the purchase price of medical equipment and pressure wholesalers to reduce the delivery price.

Consultants have their own price databases and use that data to negotiate prices.
For example, product A is currently being supplied for 1000 yen, but another hospital is receiving it for 900 yen, so the negotiation is to have it supplied at that price.

Of course, the negotiations are based on the premise that the purchase quantity is equivalent to that of the other hospital.
Naturally, the purchase price will differ between a hospital that buys only one unit per year and one that buys 100 units per year.
Furthermore, it's usually assumed that the supplier is the same as the one used by the other hospital.
Otherwise, there would be no way to verify whether that is truly the correct price at another hospital.
(In other words, they lie and say, "I got it for 900 yen there," when in reality they were getting it for 1200 yen at another hospital, in order to haggle down the price.)

Standard price negotiations using benchmarks are often conducted using these methods and logic.

Wholesaler's response

If manufacturers readily agree to lower prices in response to negotiations from hospitals like this, then we can at least meet their demands.
However, manufacturers naturally tend to be reluctant to easily match prices, citing reasons such as different sales representatives handling different orders or the specific circumstances in each region.
In such cases, dealers have to either cut into their profits and lower prices, or live in fear of losing suppliers.

Changing suppliers is the most significant right a hospital can exercise, and it's an action that's difficult to take without a clear justification.
(Although there are some hospitals I use frequently...)
However, if a hospital has a valid reason, such as "another hospital is selling it cheaper, but you're not," they will very easily switch suppliers.
In this situation, the supplier has only two options: either lower their price or risk losing the customer to another supplier.
In most cases, wouldn't the choice to lower prices be better than having zero sales?

A vicious cycle caused by price negotiations

If these benchmark negotiations are going to reduce profit margins anyway, there's little incentive to propose new products.
If that happens, the sales representative will lose their motivation to introduce new products.

Some dealers might say, "But we'll still deal with it."
However, in this industry, which suffers from a chronic shortage of personnel, increasing sales at the expense of profits is suicidal, as it also leads to an increase in one's own workload.
It might be possible with a motivated person in charge, but not all people are like that.
Ultimately, the market will likely become an oligopolistic market where only the most financially strong companies survive.

In sparsely populated or rural medical facilities, there are generally fewer suppliers available, and many suppliers tend to refuse such price negotiations.
Is the advantage that there are no competitors?

Product delivery price

The delivery price is a reflection of the history between the hospital and the supplier.
Many suppliers are reluctant to negotiate by using the delivery price from another hospital as leverage.
Therefore, dealing with price negotiations is an extremely mentally draining task, as it takes up time without benefiting oneself.

However, in a situation where medical expenses must be reduced at all costs, medical supplies are an item that is easily targeted.
The main reasons why the prices of medical devices do not decrease compared to drugs are said to be the costs borne by wholesalers for consigned inventory, costs for providing support for proper use, and labor costs for emergency response.

I feel that if these costs are not properly understood, the relationship between wholesalers and medical institutions will deteriorate.
If the only requirement is delivery and no emergency response or support for proper use is provided, then there might still be room to lower the price.

Future prospects

Recently, there has been a growing trend towards joint purchasing of materials by affiliated hospitals and other organizations, moving towards price standardization.
The gradual standardization of prices is an inevitable trend in today's world, as it reflects the need for more effective use of information.

However, another way to utilize this system is for manufacturers to propose the adoption of low-priced products to organizations that engage in group purchasing.
If the hospitals belonging to that organization offer the benefit of adopting your company's products fully, then I think coexistence might be possible.

In countries like the United States, where GPOs (General Purchasing Organizations) are well-developed, products that strongly reflect the preferences of individual physicians often bypass GPOs, resulting in smaller savings through joint purchasing.
However, for general-purpose consumables, many are supplied through GPO (General Purpose Organization), resulting in a unified and low price, and significant cost savings.
If similar initiatives are implemented in Japan, I believe it will be possible to create a symbiotic relationship between manufacturers/wholesalers and joint purchasing organizations, rather than positioning them as adversaries.
While wholesalers might perceive this situation as an attack against them, we also want to consider ways to use it to our advantage.