EHC Insights

The Changing Landscape Of the RFP

When hospitals outsource their hospital based physician services, a close, long-term relationship is often created between facility and vendor.  Nonetheless, for reasons of cost, service or quality, the services may be put out for a bid in a Request for Proposal (RFP).  As advisors to both provider groups and hospitals, we have been involved in over 50 RFP’s in the last 20 years.  As we recently assessed the outcomes of these RFP’s over time, we have noticed a meaningful shift in the expectations of the facility issuing the RFP and in the likelihood of an actual change in hospital based provider group as a result of the process.

Approximately 10 to 15 years ago, the process of a formal RFP was often a “stalking horse” – using the threat of outside vendors to reduce the cost of an existing vendor – with no real intent to change provider groups.  At that time, there were fewer large regional and national vendors as options for facilities, and quality/performance reporting was not a core expectation of hospital based providers.  If a facility truly desired to change a provider group, it was often accomplished through a direct discussion with a known vendor who had the trust of facility leadership.  In our experience, formal RFP’s had a less than 5% chance of resulting in a change of vendors.  From the vendor and the hospital perspective, the RFP landscape often looked like a sharp cliff leading into a deep, wide canyon.  Very little chance of getting to the other side!

Fast forward to today.  As we all know, the healthcare picture has evolved, with significant patient care and technological improvements.  Quality care is assumed and therefore has become somewhat commoditized. At the same time, reimbursement pressure, reporting and quality tracking requirements as well as a great deal of private equity investment in the hospital based physician space has significantly increased the number of viable large vendors available to compete for RFP’s.

Facilities are increasingly frustrated with local groups’ increasing cost, as well as the inability to provide value added data, drive efficiency or to provide effective physician leadership.  The RFP process has become much more standardized, and the options for change more robust.  C-suite executives have more confidence in large, sophisticated, well-capitalized vendors, while at the same time the financial and operational imperative for change has escalated.  Speaking purely from our own experience, over the past year we have seen approximately a fivefold increase in the issuance of RFP’s, with 30% of hospital based RFP processes resulting in a provider change.  That change may involve an entirely new entity or acquisition of the local providers into a larger group.

Either way, as health care reform reshapes the macro environment, numerous factors appear to be aligning to support the increased use and impact of RFP’s for hospital based services.  We might even say that over the last 10 to 15 years the landscape has shifted from a daunting canyon to an inviting, lush landscape with various low hanging fruits for both vendors and facilities.