Given mounting financial pressures and ongoing policy changes, healthcare supply chain leaders remain focused on driving cost savings and margin improvement. In our last article, we explored why benchmarking alone won’t deliver sustainable margin improvement in purchased services. While benchmarking has its place and can highlight immediate opportunities, real and substantial financial benefit requires a broader strategy. The broader strategy should be one that considers standardization, utilization, make-versus-buy decisions, and, most critically, stronger supplier partnerships.
Here, we dive deeper into the last strategy from the toolkit: why developing true supplier and provider partnerships is essential for both accountable margin improvement and service quality.
We’ve seen this approach deliver meaningful results. In a recent engagement, applying the same partnership strategies discussed here, Pathstone helped a client negotiate with two incumbent vendors, generating $1.2M and $700K in savings across separate categories, without damaging relationships or disrupting service. Those outcomes were possible because the focus wasn’t solely on price, but on transparency, shared incentives, and aligned goals.
Transactional vs. Partnership Models
Too often, healthcare purchased services are managed through transactional contracts. The focus is on price, terms are rigid, and transparency is limited. While transactional supplier negotiations can yield quick savings, it rarely lasts and it often creates an adversarial relationship that discourages collaboration.
Strategic partnerships, by contrast, emphasize collaboration, transparency, and mutual accountability. They enable hospitals and suppliers to align incentives, solve problems together, and continuously improve performance.
Below are key differentiators between “traditional” transactional contracting and “forward-thinking” strategic partnership contracting:
The Four Pillars of Effective Partnerships
Building meaningful partnerships takes structure and intentionality. In our experience, the most successful hospital – supplier relationships are anchored by four pillars:
Why Partnerships Drive Sustainable Outcomes
When these elements are in place, health systems achieve stronger, more sustainable outcomes. Partnerships reduce waste, improve predictability, and create incentives for suppliers to bring new ideas forward. They also build resilience by sharing risk and addressing issues collaboratively. The result: consistent margin improvement alongside better service quality for clinicians and patients.
Avoiding Pitfalls
Even partnerships once thought strong can fail if mismanaged. Common challenges include:
One-sided agreements that erode trust.
Contracts too rigid to adapt as service needs change.
Governance structures without accountability or follow-through (at minimum, quarterly business reviews are key).
Using “partnership” as a label without backing it up with action.
Avoiding these mistakes requires commitment from both suppliers and providers to openness, fairness, and accountability.
Looking Forward
Partnerships are not quick fixes: they require investment, time, and trust, but for health systems determined to achieve sustainable margin improvement without sacrificing quality, “Partnership” should be at the forefront of any contract negotiation.
By combining benchmarking insights with true partnerships, health systems can lay the groundwork for a sustainable, accountable future.
Pathstone Partners has extensive experience driving healthcare margin improvement initiatives while allowing clients to maintain strong supplier partnership. We ensure incumbent suppliers are treated fairly during the RFP process, and look for ways in which existing supplier partnerships can be expanded or improved to drive additional value.
Does this approach resonate with your organization?
Keeping in mind the theme of this article, Pathstone prides itself on collaboration and open communication with our partners. As we shape the next part of this series, we see governance and execution as natural next steps, but every organization’s journey is different. What areas would you find most valuable for us to explore next?
Let’s discuss & collaborate!