Whether you are a healthcare provider or supplier, your supply chain and finance teams put a great deal of time and effort into the negotiation, enactment, management and governance of contracts, not only with your customers and vendors but across your own organizations.
But how effective are you at both getting what you are promised and also delivering what you promised? How balanced are the puts and takes — in other words, is there enough governance in the process and is control in the right place(s) to facilitate the most balanced and mutually beneficial actions in support of agreed-upon terms?
It’s time to think of contracts in a new way, one that places them in the context of the broader procure-to-pay process. A contract “win” isn’t just about securing the best pricing. When negotiating contracts with a business partner, consider elements and terms that you can leverage for improved financial performance throughout your organization. Here are some considerations from both the supplier and provider perspectives.
Even though you negotiate contract terms with your provider customers for payment, rebates and discounts, do you really have control over whether they meet those terms? Unlike other industries, healthcare generally doesn’t do a good job of enforcing contract obligations. If a customer pays late, how often do you engage with them to align action with contract expectations? How many times has a customer not paid on time but still earned an early pay discount? In contrast, think of the penalties that we face as consumers if we don’t pay our credit card or utility bills on time. For your customers, do you have a mechanism in place that enables you to secure the payments that you negotiated within the time periods that you negotiated? If not, how effective are your contracts in reality?
While securing a reasonable product price from a supplier is certainly a win, what about all of the other financial benefits that can be gained through effective contract negotiation, such as early pay discounts, volume-based discounts and rebates? Do you have enough visibility into your procure-to-pay process so that you can pay suppliers within the terms you negotiated to take advantage of additional savings opportunities? If you are consistently paying late, you risk not only fees and penalties but also damage to your business partner relationships. On the other hand, if your suppliers can predict when you are going to pay them and you are consistent with your payments, then you have greater bargaining power to leverage during sourcing and contracting discussions. Suppliers are typically more willing to negotiate favorable terms with providers that are easy to do business with and meet their contract obligations because everyone wins in the end.