The size of a facility shouldn't set its price

A 20-bed skilled nursing facility and a 500-bed hospital can order the exact same case of a high-volume clinical consumable, from the same factory, with the same lot number on the label. The small facility will pay more. Often a lot more.

Nobody set out to punish small buyers. It is just how volume pricing works, and once you see the mechanics you can see where the fix is.

How the tiers work

Every manufacturer and most distributors price by quantity. The breaks usually look something like this: a per-case price for anyone buying a few cases, a lower price once you commit to a certain number of cases a month, and a lower price again at pallet or truckload quantity.

The tiers exist for real reasons. A pallet ships cheaper per case than ten loose cases. A buyer who commits to a year of volume lets the factory plan production. Sales reps spend the same hour on a small account as on a large one. The cost to serve a small buyer genuinely is higher.

But the gap between tiers is almost always wider than the cost difference that justifies it. The top tier is where the large systems and group purchasing organizations negotiate, and they negotiate hard. The bottom tier is where everyone else lands by default, and nobody negotiates for them.

A worked example

These are round, made-up numbers to show the shape of the problem. Real quotes move around with resin prices, freight and the season.

Say a case of that consumable is priced at three tiers:

• Fewer than 10 cases a month: $60 per case
• 10 to 99 cases a month: $52 per case
• 100 or more cases a month: $45 per case

A 20-bed facility uses about 6 cases a month. It pays $60 a case, $360 a month.

A 500-bed hospital uses about 150 cases a month. It pays $45 a case.

The small facility pays 33 percent more per case for an identical product. Over a year that is roughly $1,080 on one item. Multiply across respiratory protection, gowns, test kits, syringes and the rest of the supply closet, and the small operator is carrying a tax on being small that runs into real money.

What changes when you pool

Now take 25 of those small facilities, or 25 pharmacy locations, or a mix of clinics, pharmacy groups and buying groups. Together they use 150 cases a month. That is the hospital's number.

If one party buys for all of them, the order qualifies for the $45 tier. Add a couple of dollars a case to cover warehousing, splitting pallets and billing, and each buyer pays $47. Every one of them saves $13 a case, $78 a month, about $936 a year on that one item. The factory is happy because it shipped a full order. The buyer is happy because it got a price it could never have reached alone.

That is the whole thesis behind Cornerstone Health Group. We are a Los Angeles healthcare procurement and distribution company that brings institutional pricing to pharmacy groups, buying groups, and small and mid-size healthcare buyers. The math above is the business.

What "transparent tiers" means in practice

Transparency is an easy word to put on a website. Here is what I mean by it.

We publish the tier. A buyer can see what the price is at 5 cases, 25 cases and a pallet, and see which tier they are in and what it would take to move up. There is no "call for pricing" and no quote that mysteriously changes when the rep finds out how big you are.

We show the landed cost, not the headline. A $45 case that costs $9 to ship is a $54 case. Buyers should compare on the number that hits the invoice.

We tell buyers where their order sits in the aggregate. If a pharmacy group is 20 cases away from the next break, we say so. Sometimes they find the 20 cases.

Hidden tiers protect margin. Published tiers build repeat business. I will take the second one.

Why we partner rather than hold everything ourselves

Cornerstone is a procurement and distribution company. We do not hold drug licenses. For pharmaceutical and surgical supply lanes, we partner with licensed pharmaceutical and surgical supply companies that carry the registrations, the storage requirements and the compliance programs those products demand.

Some people ask why we don't just build all of it in house. The answer is that the value we add is in aggregation, pricing discipline and logistics. Licensed partners add the regulated handling. Each side does what it is set up to do, and the buyer gets one order, one invoice and one point of contact.

It is also the honest structure. A buyer should know who is licensed for what. Pretending otherwise is how a supply chain gets into trouble.

The point

The size of a facility tells you how many cases it needs. It should not tell you what it pays per case. When enough small buyers show up together, the tier that was built for the biggest systems is available to them too. That is not a trick. It is just arithmetic that somebody has to do.