Product pricing: Increase in the cards?

Sunday, February 27, 2011

With prices for commodities, fuel, transportation and just about everything else on the rise, providers should not be surprised if product prices increase later this year, say industry watchers.

"We are trying not to because of the drop in reimbursement due to competitive bidding, but it is an issue," said Harvey Diamond, Drive Medical's CEO. "There could be an increase coming from all of us."

Carl Will, Invacare's senior vice president, agreed.

"We've had significant increases in cost, and that is a reality," he said. said. "We're playing it by ear. We watch the commodity markets very closely, including ocean freight, diesel, steal, aluminum, lead, and we try as best we can to offset those with operations improvement and then go from there. But I think there is a real possibility of a price increase later in the year."

Pricing pressure

Last year, CMS announced, on average, a 32% drop in reimbursement in the nine cities participating in Round 1 of competitive bidding. Since then, reports have circulated that winning providers are squeezing manufacturers for price cuts to help offset the reduced reimbursement.

"Initially, providers were calling and saying, 'You have to drop my price or I'm going to drop you,'" said a manufacturer's executive who asked that his name not be used. "I said, 'Wow.'"

Lately, however, the winning bidders have been more concerned with servicing new patients than buying equipment at the lowest price possible, he said.

In fact, if manufacturers do have to raise prices later this year, Diamond doesn't expect to "hear a lot of screaming." Providers understand that manufacturers face increased costs. They also realize that product price is only one factor when it comes to purchasing equipment: Warranty, durability and other factors are also important, he said.

"Keep in mind that a lot of people negotiate and make like the only thing they care about is the price of an item," he said. "But I think all good business people out there are also thinking about total cost of ownership."