Trends & “Gotchas” in Healthcare Software Deals


At ClearEdge, the number of cases involving healthcare software has exploded in recent years: case volume ballooned by 161% in 2020, and another 82% in 2021. This increased activity has allowed us to observe spending patterns, trends, challenges, and best practices across many dozens of deals in this market, which we summarize here.

During this same period, two of the top healthcare solution suppliers were purchased by software behemoths: Microsoft acquired Nuance for $20B in April of 2021, and seven months later, Oracle acquired Cerner for $28B. We believe the Oracle/Cerner acquisition may have major implications for Cerner customers, including a strong push by Oracle to move customers from their on-premise solutions to the cloud, and get them to use Oracle’s Voice Digital Assistant.

For former Nuance customers, the acquisition combines Microsoft’s healthcare specific versions of Azure, Microsoft 365, and Dynamics 365 platforms with Nuance’s speech recognition and AI technologies, which they have been selling to healthcare customers for decades.

Key Gotchas

1. The leading healthcare solution suppliers omit list prices in their quotes.


This leaves clients wondering, “Are we getting a discount?” and, “What are my potential savings?” The table below shows the percentage of cases among the top suppliers where list price was disclosed in the negotiation.

Supplier

Percentage of cases where list price was disclosed

Cerner

8%

Nuance

35%

Epic

17%

Allscripts

40%

Wolter Kluwer

17%

FujiFilm

0%

In the cases where discount information is provided by the supplier, it is typically not at the line-item level. Many of the vendors use different ways of disguising line-item discounting by offering a bundled discount. For example, Epic often includes a “multi-product” discount that is applied to the total spend when purchasing specific software licenses together. This kind of bundle discounting can make it difficult to keep track of unit pricing, which is important to know when negotiating at renewal (bundle discounting also hides how much savings can be leveraged). We suggest that clients request list price and discount information when this isn’t present, although these items can be difficult to obtain without sufficient leverage.

2. The top healthcare vendors (and tier three suppliers) tend to enact year-over-year price increases during the term in multi-year agreements.


In general, we expect clients to be rewarded with flat pricing during the entire term when entering multi-year agreements. We recommend that clients use the length of these commitments as leverage to achieve flat pricing. One way to do this is to create uncertainty around such a long commitment term; introducing competition will help increase the legitimacy of this message.


3. Clients frequently run into difficulties when introducing competition during their negotiations with healthcare suppliers.


The customer is at a disadvantage due to the nature of healthcare products: the supplier knows that specific clinical requirements are a “non-negotiable” in these purchases, a factor which they can use to their advantage in negotiations.

Customer can counteract this situation by making sure that messaging to the sales rep is tightly controlled and discussed only within the sourcing team and line of business or specific specialty area. Understand that sales reps often target doctors during the sales process, so the sourcing team must ensure that their team and all clinical staff are on the same page with their message to the vendor. It is also important to identify and introduce viable competition, ideally a company that is viewed as a strong technology rival to the supplier.

The healthcare solution market is comprised of two segments, which present different challenges. The large suppliers, such as Epic, Cerner and FujiFilm, typically draw from the same sales playbook. Its tactics present some of the following risks:

  • Historical discounting can be used against the customer in negotiations if the customer initially received poor discounting or if the supplier’s general discounting is traditionally poor. To mitigate this scenario, the customer can track historical discounting to message further concessions in deals that come under the specific historical discount mark. Tracking historical discount gives the customer the ability to point to specific previous data points.

  • Long standing supplier-customer relationships can reduce (or eliminate) the uncertainty in negotiations for the supplier. This risk can be countered by introducing competitors to create the threat of the supplier losing business.

  • Using small, up-and-coming suppliers is an effective way to accomplish this, and there are numerous tier three suppliers who are eager to disrupt the big players. They typically offer similar products with the promise of increased customer service and newer technology. However, it is important to note that smaller companies often offer products that are difficult to integrate into a large hospital setting. Customers can leverage this drawback by conveying uncertainty around product integration and functionality, while also leveraging their account size when their business would represent a large customer for the supplier.

  • Smaller companies sometimes hide marketing/branding stipulations in their contracts which allow them to utilize their customers’ brand and logo. This can cause issues with brand alignment for the buyer. If customers can message hesitancy around this issue, the supplier may be more willing to move on pricing and/or other commercial terms (like renewal price caps, price holds for additional licenses) to win your business.

Whether your team is talking to large or small healthcare solution provider, it’s always best to understand the ramifications of the messages you send, as well as the broad competitive landscape. To learn more about creating leverage with healthcare software vendors, read our blog titled How Hospitals are Getting Beat by Microsoft and watch our webinar recording, Hospitals: Optimize Your Microsoft Spend, or contact your ClearEdge representative.


- Pete Boyer is a ClearEdge Analyst.