Accepting a proposal from a vendor partner can be a difficult decision for many hospitals. In this article, I provide 3 strategies to gain more insights into your vendor proposals and secure vital cost savings for your hospital.
When hospitals renew a purchased service agreement or need to upgrade their EHR system, they are often left facing more questions than answers. For example:
- What do we do with our legacy data when upgrading our EHR system?
- Is this proposal a fair market price?
- What are the alternatives and how do we make the best decision for our hospital?
- Do we have time to analyze the market and switch vendor partners?
Many hospitals face the unenviable and often time-consuming task of having to facilitate hundreds of thousands of proposals from their current vendor partners in order to successfully deliver quality patient care.
From supply chain to IT and physician preference items, hospitals rely on a wide range of products and specialized services to maintain that patient care but are often hindered by a lack of knowledge and expertise in this key area.
That gap in knowledge can result in reduced profit margins and value of care.
Here’s my advice on how your organization can remain proactive when reviewing proposals from your vendor partners.
Take employee turnover into account
“Hospitals have a high turnover rate which directly impacts workflow and costs. A study by Compdata Surveys of 11,000 healthcare employers with more than 11 million employees found the average turnover in healthcare jobs in 2017 was 20.6%, up from 15.6% in 2010, putting healthcare’s turnover second only to hospitality’s.”
Employee turnover can have a significant impact on healthcare. Poor attrition often means that critical decisions in a health system are left to inexperienced employees. A vice president of IT with three years of experience working in a particular hospital will have a deeper understanding of its current EHR system when negotiating an expensive upgrade than one who has only recently been employed in the role.
Working collaboratively with a healthcare consulting organization such as VIE Healthcare Consulting can help to resolve this issue. Our expertise helps to support a newly hired vice president to make an informed decision.
Ensure competitive pricing from your vendors
I am often asked by my clients to benchmark proposals against the current marketplace to ensure they are competitive. In the majority of cases, opportunities exist to obtain a better proposal.
With our extensive database of contracts and pricing models, VIE Healthcare is able to rapidly benchmark proposals for our clients, equipping them with the insights and ability to negotiate competitive agreements with their vendors. This exercise also frees up vital time for hospital leaders to maintain a higher level of productivity.
In addition to providing benchmarking services, VIE Healthcare also negotiates directly with the vendor on behalf of the hospital, further relieving the workload.
Carry out a line item analysis
A major issue faced by hospitals when reviewing proposals is the lack of invoice analysis. The following case study illustrates my point.
A linen provider may be offering linen to a hospital at a per piece cost. At the end of their current three-year agreement, the hospital is provided with a contract renewal for a further three years.
This proposal reflects just a 3% annual price increase to the current year pricing which the hospital believes is satisfactory as they are happy with the services provided by the vendor. The hospital is also able to negotiate further to secure a 5% cost reduction from the current year resulting in a 2% cost savings on the current proposal.
On the surface, this appears to be a satisfactory result but deeper analysis reveals a different picture.
When asked to carry out a review of invoices before agreeing to the 3-year contract renewal, VIE Healthcare identified the following:
The new proposal was actually 8% higher than the initial 3-year agreement due to a 5% increase in the last 2 years of their initial agreement, together with a 3% annual increase on the current proposal.
When the initial 3-year agreement was signed, the vendor offered competitive pricing with 3% annual increases.
However, the line item analysis carried out by VIE Healthcare revealed that the linen vendor never charged the contracted rates.
Instead of increasing prices by 3% per year, they increased them by 5%.
This was difficult for the hospital to identify because of the hundreds of invoices they receive each week.
While the hospital believed they were achieving a 2% cost reduction, in reality, they faced an 8% increase in costs on this proposal.
This oversight is due to the inability of most hospitals to consistently monitor their line item invoices over long periods of time. This case study illustrates how costs can easily compound over time while you may believe you have successfully negotiated a cost reduction.
In our experience, these examples are common in purchased service agreements but extremely difficult for hospitals to identify without the right technology and expertise.
Invoice ROI™ from VIE Healthcare allows hospitals to keep track of their line item costs on a monthly basis to avoid these hidden cost increases, delivering margin improvement with our proven patented technology.
When hospital leaders need to make a significant decision that will impact their organization for the next 5 years, it is crucial that they are fully aware of their options, as well as knowing the right questions to ask.
VIE Healthcare aims to empower healthcare leaders when negotiating and agreeing to vendor proposals, from both a compliance standpoint and a strategic standpoint.
Learn more about the power of Invoice ROI™ for your hospital.
For a complimentary consultation, call our office today at 888-484-3332 ext 501 or email us at [email protected].