Where Does Contracting Begin and End? A Documented Process and Workflow Could Be the Answer




Jim Counts, MS, CMRP, Senior Consultant, Advisory Solutions – Supply Chain Operations

Does your hospital struggle with pricing issues? Does it seem to take forever to get contracts signed? Do you wonder why the savings you projected aren’t reflected in the monthly performance reports? One reason may be an undocumented contracting process and workflow.

Contracts can be initiated in a number of places, for a number of reasons, and from a number of people: a department identifies a need for equipment, products or services; a non-contracted spend opportunity is identified; a vendor identifies an opportunity or presents a proposal; a review of expiring contracts and identification of new contracting strategies or opportunities; or an audit by a department, committee, vendor or your GPO.

And, the contracting process doesn’t end when the contract is signed, but when the contract term expires.

So how do you make sure all the steps in between are managed appropriately? A well thought-out documented process and workflow is essential to avoid costly contracting errors and facilitates timely contracting.

The following is a typical contracting process with some of the steps you might see, depending on the model you use. The most important thing is to find or develop a process that best fits your organization.

  1. Contract request: Different events may act as a trigger, but at some point there has to be a contract request. Contracting should always consult with the operational department(s) whose contracts they are reviewing for guidance. This should be a collaborative process, ensuring departmental and organizational needs and concerns are addressed.
  1. Reviews and redlines: All contracts should be reviewed to ensure the language is acceptable to both the legal team and the contract owner (typically the requesting department). Be aware of GPO contract terms, commitments and rebates. Non-acceptable language should be revised to avoid legal, clinical, operational or other unacceptable risks, commitments or performance requirements. These edits are often referred to as “redlines.” Remember to collaborate with the affected department(s) and your legal team to ensure everyone is on the same page.
  1. Approval: Approval is when both parties have agreed to the terms and conditions of the proposed contract and negotiations are complete. Typically, both parties will have a structured approval process that's completed before the contract is signed. This should be a part of your contracting checklist to ensure critical events have been completed.
  1. Execution: A fully executed contract requires the legal signatures of both parties (vendor and provider). Contract execution is when both parties have taken steps to implement the signed contract on the effective date specified. Note: The “effective date” is not always the date the contract is signed and in some cases may be 30 to 90+ days after the contract has been signed.
  1. Storage: Leading contract management practice is to have a single repository for your contracts. This strategy may be executed differently, using different technologies and methods. The goal is that you have visibility to what contracts are stored, have access to the contract and summary data/information, and you can access them for review and audit as necessary.
  1. Records management: Contracts are not static. You will need to add contract addendums, or amendments to address specific issues, or update products, services, pricing or contract terms. Managing when non-active contract records or documents are moved to inactive archives, or destroyed, should be governed by your local policy that integrates federal, state and other regulatory requirements for record retention and disposition.
  1. Search and retrieval: Information required to effectively manage your contract(s) may be kept in a spread sheet, database, software management solution or other platform. It's important to be able to search and retrieve this information and make available as appropriate in a timely manner.
  1. Audit and reporting: Contracts often have terms requiring or allowing periodic audits and reporting to validate contract compliance. You should have a process and methodology to quickly and easily run reports that validate contract performance to support contract compliance and rebate-reporting requirements, as well as support tier-enhancement requests, or other contracting strategies and negotiations.
  1. Renewal and termination: It's important to review contracts with the contract owner, allowing sufficient lead time to determine an effective contract strategy. Should the contract be extended, allowed to expire, renewed, renegotiated or sent out for bid? Depending on the strategy, lead times can be anywhere from 30 days to well over six months for a complex RFP. Finally, you need to close out expired or terminated contracts with appropriate documentation as to why the contract was not renewed and the disposition for that contract and spend.

The contracting process is a cradle-to-grave function that can only be well managed by a comprehensive process and workflow design that includes legal, clinical, operational and management oversight. A documented contracting process and workflow is the key to effectively and efficiently integrate this diverse group into a comprehensive and collaborative contracting team.

About the author. In his role as senior consultant at Vizient, Jim Counts uses his extensive experience in the health care industry to provide consulting, coaching and mentoring to member organizations in the form of project leadership and operational and analytical assessments that focus on non-labor expense reductions and operational and financial performance improvement. With more than 30 years of progressive health care leadership and management experience, Counts possesses a keen understanding of supply chain operations, including contract sourcing, negotiations and contract lifecycle management; procurement/e-procurement and procure-to-pay; and value analysis development and implementation.

Related Materials