Four Red Flags of an Unhealthy Vendor Relationship

Establish More Transparent Supplier Relationships to Prevent Supply Chain Overspending.

Establish More Transparent Supplier Relationships to Prevent Supply Chain Overspending.

Are you paying too much for capital equipment, med-surg supplies, and outsourced services? If your relationships with your suppliers are too friendly, you may be.

Unhealthy vendor relationships often result in overspending and unfavorable contract terms. When vendor relationships are too friendly, healthcare administrators are reluctant to demand full transparency, resulting in overpayment for products and services. Large, recently merged healthcare organizations often assume their strategic alliance agreement guarantees them optimal pricing, but that isn’t always the case. Based on contract analyses, one organization discovered it could save 40–70 percent on some radiology equipment and surgical devices.

RELATED BLOG: The Dangers of Getting Too Friendly with Your Suppliers

Healthcare organizations need to identify cost-saving opportunities to survive in the wake of the COVID-19 pandemic. Making timely, fully informed purchasing decisions is essential to containing costs. The pandemic has exposed how unhealthy vendor relationships can contribute to healthcare organizations absorbing substantial, and at times unnecessary, costs over the last months. Sometimes this is just a function of contractual arrangements that have gone unquestioned but can and should be modified; other times, vendors have exploited their personal relationships with health system purchasers and influencers to take advantage of the crisis.

Establishing more professional, more transparent vendor relationships is one key to realizing significant cost-savings now and in the years ahead. Start by assessing your vendor relationships; if necessary, reset them by questioning vendors about pricing and contract terms.​

4 Red Flags of an Unhealthy Vendor Relationship

In an unhealthy relationship, the vendor:

Asks you to sign a nondisclosure agreement related to pricing. Just say no! A nondisclosure agreement has the potential to handcuff your organization for several years by leaving you legally powerless to verify or validate a vendor’s offers.

Discourages you from going outside your organization for price validation. You need to be able to compare quoted offers with knowledgeably analyzed and appropriately vetted, consistent, accurate, and unbiased benchmarks, ensuring they are competitive compared to multiple GPO, non-GPO, corporate, and special conditions related to purchase. While comparison to other organizations is important, it is also vital to compare within you own organization. Growing corporate contracts, and larger healthcare enterprises it is common to find multiple sites paying very different prices for the same things. This is particularly a challenge when purchasing is decentralized without a well-defined workflow and value analysis process.

Pressures you to sign off quickly without sufficient time to review the quote and terms. Analyzing the quote and examining benchmarking data for list price, component price, warranty terms, and service contracts take time.

Provides faux transparency. Does the vendor supply the information you need to fully understand the costs and terms? For example, reagent rental contracts often hide the true price that you are paying for the equipment and the consumables. In this case, benchmarking is impossible. To analyze reagent rental quotes, you need to obtain total transparency by requiring the vendor to separate the price of the reagents and each upcharge that is included. This allows you to determine whether the base prices for your reagents and the prices for your equipment rental are competitive.

Answer these questions to evaluate a vendor’s transparency:

  • Is the vendor routinely giving you quotes that are not executable?
    For example, phrases such as “preliminary,” “budgetary,” or “For informational purposes only, this is a summary sheet not a quote” were seen on actual quotes received for review and analysis. These are rarely competitive offers. When they are competitive or even extraordinary offers, this provides a loophole the corporate office of the vendor may use to claim the offer is not valid when you move toward a commitment to purchase the offered deal.
  • Is each quote configured appropriately for your facility?
    In highly configurable systems, a clear consensus of what your clinicians need the system to provide is critical. Separate “need” versus “want” to maximize cost-effective capital spending. Using this to ensure the offer is neither under configured nor over configured is essential. Both can lead to a more expensive purchase than necessary. Either you buy features and capabilities that are not needed and may not even be reimbursable, or you pay less up front and then have to buy expensive add-ons or upgrades once you are committed and have no other viable option. Information from an unbiased source that can identify components you are purchasing that are not often bought or considered by others can be invaluable. Conversely, you need to be aware of components or options not included in your offer that are being purchased by a large percentage of other organizations. If your offer is missing items, you will likely pay more later.
  • Is your vendor charging fixed fees for services and products that are utilization-based, thus obscuring pricing and allowing suppliers to hide a buffer of additional profit?
    If you notice these red flags in your vendor relationships, the next step is to validate and verify pricing and contract terms to create transparency and rebalance vendor relationships. Analyze your quotes by comparing them to benchmarking data, then use this information to negotiate better prices and contract terms if necessary.

TractManager’s Spend Management solution includes spend analytics, benchmarking, contract and quote analysis, and invoice reconciliation to help you make purchasing decisions based on unbiased data. TractManager’s customers improve their operating margins by 3 percent using our Spend Management software and services.

To learn more, read our white paper Validate & Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic.

Author:

Tom Watson

Senior Clinical Strategist

Related Blogs:

Related Resources:

TractManager’s Purchased Services program helped a health system in the Northeast save $11M on imaging and biomedical service agreements.

TractManager’s Purchased Services program helped a health system in the Northeast save $11M on imaging and biomedical service agreements.

The Challenge: The medical equipment market in the U.S. exceeds $8 billion a year. Providing service and maintenance for the complex equipment found in today’s hospitals is an expensive proposition. After spending millions of dollars on sophisticated imaging equipment …

Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic

Vendor relationships need to be healthy, professional, and transparent to ensure you’re getting the best pricing and contract terms. Discover ways to enhance your relationships.

Share This