Digital Contract Management in Healthcare: Best Practice Update
Blog updated March 2023 by:
Joe Jackson, Director of Strategic Sourcing
Joe was co-founder of Strategic Healthcare Services, specializing in consulting with hospitals to reduce supply chain costs. Curvo acquired Strategic Healthcare Services in May 2021. Joe has spent 25 years in healthcare leadership, including operations, supply chain and finance. He’s worked with hospitals across the country on projects in implant utilization and cost analysis, expense reduction, financial system implementation, payroll and labor productivity analysis, and inventory and distribution management.
Five years ago digital contract management in healthcare wasn’t even on the radar of most supply chains. That’s changed, and it couldn’t happen too soon.
Disjointed Medical Device Contracts Meant Lost Savings
Even today, it's not unusual to find supply chains overwhelmed by contract management because their tactics, and processes haven't grown along with the rest of the industry in a technical sense. This makes dealing with contracts for multiple suppliers and their divisions overwhelming.
Large medical device companies typically sell multiple product lines like heart and vascular products, joints, and other product lines. In the past, big enterprises tended to be more siloed. Divisions had their own sales structures, their own managers, their own P&L, their own goals, and they didn't cross over.
Although a hospital might do business with a supplier in multiple categories, there was no overall structure to create value from an integrated relationship. Contracts were standalone with no way to leverage combined purchase volumes for more discounts or rebates, and that was frustrating for healthcare enterprises.
Corporate Contract Overlay Agreements Now Common Practice
Fast forward to today. When comparing current options with best practices of five years ago, something that stands out in the contracting space is the corporate overlay agreement. From just being seen occasionally five or six years ago, now we’re seeing overlay agreements all the time, and that's a good thing.
Overlay agreements take strategic sourcing to a point where hospitals work in partnership with their suppliers to drive discounts and rebates. All purchases with that supplier get linked in the overlay agreement. Hospitals and suppliers can truly partner through bigger commitments and across multiple categories to drive more value.
Other Refinements to Digital Contract Management in Healthcare
Another best practice that’s gained adoption is use of pre-agreed master terms and conditions. Healthcare contracts become easier when there’s just one primary set of terms and conditions for all agreements with one supplier.
Teams don’t have to constantly go through the same Ts and Cs review and approval for every contract with a supplier. The practice brings more structure and efficiency to the digital contract process, in the same vein as an overlay agreement.
The master Ts and Cs tie everything together, so if you have multiple agreements with a supplier, they all feed off of one main set of terms and conditions. It makes the contracting process faster, more streamlined, and just easier overall. Contracts don't get hung up in Legal every time you want to make a change or or add something.
Technology-Enabled Contracting in Healthcare
Contract management has been known as very manual, very time-consuming and very spreadsheet-based work. Lack of reliable data and data management is also a problem as healthcare organizations increasingly pursue data-driven contracting decisions.
When business and analytics users can easily find and use relevant data, contract operations and analytics become more effective. Getting contract management off paper has made impressive progress over the last five years.
For many, the shift started with data enrichment innovation. Harvesting usage data electronically on a single source platform puts more tools within reach of supply chain teams. Teams can capture data on a single platform electronically, and then go to market with that data to facilitate a digital contract.
Exchanging documents electronically, signing documents electronically, having that electronic handshake – technology like the end-to-end Curvo Platform brings contracting up to date. Now organizations don't have to do data dumps from one system to another, or email spreadsheets back and forth to facilitate an RFP. Contract management in healthcare can be all tied together in one electronic platform.
Supply Chain Best Practices in Healthcare
Many sourcing best practices of five years ago still have value. The original blog continues here.
1. Implement data standards
Global GS1 standards for product identifiers such as bar codes can result in major savings by automating supply chain operations. A UPS survey on healthcare supply chain management shows that nearly half of respondents are undertaking initiatives on data standardization.
2. Create modern inventory management systems
These systems help to optimize the safety stock of each SKU for each inventory location. The UPS survey shows that 2/3 of all respondents are planning to invest in IT. Of those, 75% want an order management system and 63% want a web ordering system.
3. Reduce inventory without adversely affecting service
Unnecessary SKUs typically account for 20-30% of a healthcare system’s total SKUs. Sixty-two percent of healthcare supply chain managers also have major concerns about product damage and spoilage due to obsolete inventory.
4. Collaborate with key suppliers
61% of respondents said a regular logistics partner was successful in cutting costs. This strategy could be equally useful for other healthcare supplies such as chemicals and pharmaceuticals.
5. Find a reliable transportation partner
A transportation provider who is flexible to your needs is vital for controlling costs of a healthcare supply chain. This practice will primarily benefit the 56% of healthcare suppliers who distribute products through distributors or wholesalers and the 46% who ship directly to customers. Of the decision makers in healthcare supply chains, 69% cite temperature and weather as a top challenge in maintaining product integrity.
Next Steps to Build Strong Sourcing Best Practices
When your organization follows sourcing best practices like digital contract management, efficiency and savings flourish. What would that look like for your organization? Let’s do a custom Curvo Platform demo and see.