5 Steps to Improve Contract Management in Healthcare Organizations

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Managing contracts is a complex task for healthcare organizations, with a diverse range of agreements to oversee. From provider contracts to vendor agreements, these contracts cover both clinical and non-clinical services and are subject to strict regulations to protect patients. Laws such as the Federal Anti-Kickback Statute and the Stark Law govern provider arrangements in order to ensure compliance. 

However, with the overwhelming volume of contracts that hospitals must handle, along with margin pressures and the complexity of oversight, it's crucial for healthcare organizations to adopt measures that ensure regulatory compliance, organizational efficiency, and protect revenue. In a rapidly changing market with squeezed operating margins, managing risk and complying with regulations becomes even more challenging. Therefore, healthcare systems must address the complexities of the regulatory environment and decentralized data challenges that they face. 

So, what steps can healthcare organizations take to enhance their contract management practices and optimize their operations? 

Step 1: Proactively combat spend increases and renewal risk 

Supply chain costs continue to rise, impacting healthcare organizations' bottom lines. Between 2019 and 2022, hospital supply expenses per patient increased by 18.5%, surpassing inflation rates. Emergency care supplies saw an even greater increase of nearly 33% during this period. However, constraints on staff bandwidth and lack of visibility put health systems at financial risk from auto-renewals and premium pricing.

As a baseline, contracts should explicitly state renewal or expiration terms, but to ensure renewals don’t fall through the cracks, automating the process of identifying, managing, and tracking expiring contracts is crucial. By providing automated alerts to relevant stakeholders ahead of renewal dates, healthcare organizations can address inflationary pressures, find savings, and prepare for negotiations.  

Step 2: Protect team bandwidth 

Many hospitals still rely on manual, paper-based contract management processes, which hinder staff from easily locating specific contracts. This leads to wasted time and resources as highly skilled personnel struggle to gather complete information. This challenge is only amplified at growing integrated delivery networks (IDNs) with ever-increasing contract volumes across the enterprise.

Manual contract management also puts hospitals at risk of lost revenue and compliance issues, costing the industry an estimated $157 billion per year. By implementing standardized classification methodologies and leveraging automation for custom alerts and workflows based on roles and permissions, healthcare organizations can enhance visibility, searchability, reporting, and transparency. This allows for efficient execution of contract management activities and prevents duplication, lost contracts, and unnecessary expenses. 

Improving contract management practices is vital for healthcare organizations to ensure regulatory compliance, protect revenue, and optimize operations. By taking proactive steps to combat spend increases and renewal risks, and by protecting team bandwidth through centralization and automation, healthcare organizations can enhance their contract management processes and drive success in a challenging market. 

Step 3. Ensure Compliance with Organizational Policies and Compliance Drivers: 

Aligning contracts with organizational policies is essential for mitigating risk and maintaining compliance. By integrating policy prompts into the contract management process, automation can assist in ensuring that contract-related activities adhere to the appropriate procedures. However, many organizations lack oversight into key contract activities, such as signing authority, leading to potential issues and misunderstandings. To protect the organization and avoid penalties, it is crucial to have the correct parties involved in the signing process and to involve the compliance department when necessary. This protects the organization by ensuring compliance with any relevant regulations and safeguards against unauthorized purchases. Additionally, there are several compliance considerations that can reduce risk and penalties, such as: 

  1. Generating customized timesheets based on contract terms and conditions. This helps ensure that the contracted workforce delivers services as agreed upon, while remaining compliant. 
  2. Creating surveys to manage and evaluate vendor relationships effectively. This helps in reducing vendor-related compliance risks. 
  3. Tracking non-monetary compensation received by providers as part of the contracting process, ensuring compliance with the Anti-Kickback Statute while facilitating easier reconciliation with CMS Open Payments. 
  4. Collecting and reporting on information regarding conflicts of interest involving providers, executives, board members, and purchasing agents during the contracting process. 

Step 4: Have one source of truth for contracting across the enterprise

The contracting process is deeply connected across the purchasing, legal, compliance, spend ecosystem. From surgeons’ employment agreements and medical device leases to supplies and maintenance contracts for facilities, everything starts with a contract. Centralized contract management is vital for efficient collaboration and standardized processes.

By implementing a centralized system, organizations can reduce the risk of missing contracts and better protect against compliance challenges. This is particularly crucial in physician contracting, where meticulous data management is necessary to avoid overpayment and fines. In healthcare contracting, tracking various components beyond the initial execution stage is vital.

By providing a single platform for contract management and provider time tracking, physicians can spend less time on administrative tasks and focus more on patient care. For contract professionals, having all contractual information, including hours worked, in one accessible platform is highly valuable. Ultimately, utilizing a centralized format for tracking all contracts can help save compliance headaches and prevent costly penalties. 

Step 5: Promote connectivity and protect against risk  

Connectivity is vital for efficient healthcare operations, and the same goes for contract management. Healthcare organizations should prioritize establishing baseline connections, such as Single Sign-On (SSO) and ERP connectivity, to create a seamless ecosystem for managing contracts and bridging data gaps. However, while promoting connectivity, organizations must also prioritize data protection. Third-party supply chain software is increasingly vulnerable to security breaches, putting patient data and health systems at risk. To minimize these risks, supply chain partners should meet information security and data protection standards, like the esteemed HITRUST certification. 

Effective contract management is essential for healthcare organizations, enabling them to ensure compliance, mitigate risks, and optimize operations. By adopting best practices and leveraging contract lifecycle management tools designed for healthcare, organizations can streamline processes, improve efficiency, and safeguard revenue. 

Discover how these contract lifecycle management tools can protect revenue and your organization from potential risks by scheduling a call today. 


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