Effective Vendor Contract Management Solutions for Hospitals and Healthcare Organizations
VIE Healthcare recognizes the challenges in contract management.
We help hospitals save money by:
- Finding hidden fees and pricing errors in your contracts.
- Providing vendor negotiation training or negotiating on your hospital’s behalf.
- Creating a vendor contract management system.
What are Vendor Contracts?
Vendor contracts are legally binding documents which form the foundation of a relationship between the hospital and vendor. They cover a wide range of products and specialized services from supply chain to IT and physician preference items (PPIs).
Hospitals face the daunting task of facilitating hundreds of thousands of proposals to deliver quality patient care. Critical items in contracts with vendors include price and payment terms, and operational terms (1).
Hospital vendor contract requirements are complex, which makes negotiation challenging.
How to Choose Your Vendor Partner
A healthy relationship requires honest communication and transparency between the hospital and the vendor. Successfully selecting a partner depends on multiple factors:
- Determine your specific need: Based on hospital size, location and community needs.
- Benchmark: Compare the services and prices of multiple vendors.
- Vet your top three choices: carry out a background check on the reputation of each company.
Implement a vendor management contract review checklist that delivers data analysis and insights in real-time.
Challenges in Vendor Contract Management
- Changing list price: Vendors change their list price book every year. Margins are increased because the discount offered to hospitals is from a list price.
- Hidden fees: Underutilizing a bundled service or a service with a minimum charge leads to higher costs.
- Product Creep: When unauthorized, higher priced products are introduced on an unmonitored basis, or when a growing utilization of higher cost products occurs.
- Price Creep: When vendors slowly increase prices over time or subtly apply fixed discounts to new price lists.
- Cost Shifting: When vendors seek to compensate for discounts by increasing prices.
- Highly trained vendors: Hospitals must learn to apply the same or more advanced negotiation strategies to maximize cost savings.
Vendor Contract Management Best Practices
Implement the following strategies in your contracts with vendors to optimize costs:
- Avoid monthly minimums. These are often tied to a volume guarantee structure that is impossible to achieve.
- Do not allow prices to auto-renew.
- In or out of term hospitals can negotiate vendor agreements at any time.
- Avoid personal relationships between vendors and those negotiating contracts. These can lead to unreasonable or one-sided contracts.
- Consider performance-based contracts with vendors, also known as shared-risk or shared-benefit agreements.
- Implement an effective system to monitor vendor contract compliance and performance, and ensure standards and expectations are being met.
- Do not compromise on quality or patient safety for a discounted rate.
Why Every Hospital Needs a Vendor Negotiation Strategy
Negotiation must form a central part of your overall strategy.
At VIE Healthcare®, we understand the challenges hospitals face in negotiating competitive pricing and understanding what is included in a vendor contract.
Vendors and managed care companies use sophisticated strategies and commit significant resources to educate their employees in highly skilled contract negotiation.
Hospitals must learn to apply the same, or more advanced, strategies and analytics during negotiations to minimize risk and drive margin improvement.
Improving your results by 1, 2, or 3%, can have a significant impact on your bottom line.
For example, with a 10% margin, your organization would require $10 million in new sales to realize $1 million dollars in profit, which is only 1%. In comparison, if your margin is 5%, you would need to make $20 million in new sales to achieve 1% in profits.
Case Study
Lisa Miller explains how VIE Healthcare® helped one hospital achieve $1,000,000 in additional cost savings on an RFP by constructing a strong vendor negotiation strategy.
Best practices in negotiating vendor contracts can be achieved with negotiation training with VIE Healthcare®.
Building an in-house team to effectively act on your behalf in terms of analytics, strategy
3 Signs of a Successful 3rd Party Vendor Contract
In a mutually beneficial partnership, vendors:
- Keep their promises by honoring their contract.
- Deliver quality services at competitive prices, protect patient data, and prioritize patient safety.
- Are open and honest in communication with your hospital.
Eliminate the hidden fees and off-contract spend in your vendor contracts
Work with VIE Healthcare® to drive margin improvement and save money with our proven cost management strategies, including:
- Find the hidden fees and cost savings in your hospital agreements.
- Deliver negotiation strategy training for your health system – or negotiate on your behalf.
- Implement a vendor contract management system to deliver cost-savings in real-time.
Key takeaways
- Vendors utilize multiple pricing strategies to increase their margins and hospital costs over the contract period.
- Line item analysis of your purchased services invoices is the only way to identify pricing errors and off-contract charges.
- Allowing your contracts to auto-renew will cost your hospital money.
- Your vendor agreements can be renegotiated at any time.
Maximize Contract Performance, Eliminate Errors and Save $$$ With Vendor Contracts Expertise From VIE Healthcare®.
Our team of experts at VIE Healthcare saved a New York hospital $267,000 a year by negotiating a 21% reduction in a five-year service contract.