Understand the Top 3 Basic Agreement Types and How They Impact Your Healthcare Organization

Strategic sourcing and contract lifecycle management are the lifeblood of a healthcare organization.

Efficient contracting ensures that frontline providers have immediate and adequate access to the therapies, supplies, and ancillary services needed to deliver high-quality patient care. These three basic types of contract agreements—standard term, evergreen, and auto-renewal—have well-defined and understood uses that can be applied to ensure dependable supply and economic advantage:

  • 1. The standard term agreement is exactly as stated: a traditional contract that has a fixed term length. Many standard term agreements have a provision for early termination as well as extensions and amendments. This type of contract has been negotiated with the necessary boundaries to reduce risk and control spending in a more formal manner. Examples of standard term agreements are Physician/Provider Employment Agreements and Equipment Purchase Agreements.
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  • 2. The evergreen contract has no formal expiration date or fixed term. Evergreen contracts are often used for operational support services such as linen supply, equipment maintenance, and landscaping. Evergreen is rarely used for supply chain contracts, where pricing fluctuates quite often and healthcare organizations need the flexibility to easily renegotiate more advantageous terms. Furthermore, supply chain vendors are not likely to enter a fixed price schedule-based contract in an evergreen manner. There is inherent risk with traditional evergreen contracts as they tend to be overlooked by the contract administration team due to the lack of an expiration date.
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  • Mature contracting organizations generally devise some sort of tickler system to remind the responsible buyers to periodically review these agreements. MediTract CLM provides an intuitive reminder whenever a member of your contract team creates an evergreen agreement, ensuring that automatic reminders are sent periodically to review these contracts for necessity and fiscal advantage.
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  • 3. Auto-renewal contracts renew automatically for a specific number of times—not indefinitely like evergreen contracts. Auto-renewal contracts contribute to millions of dollars in unnecessary expense each year, but that does not mean they should be avoided. Auto-renewal contracts simply require close monitoring that is aligned with the specific auto-renewal provision as written in the individual agreement.
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  • Auto-renewal provisions can vary significantly and contain language that dictates a time period by which notification must be delivered to the vendor should the contract entity wish to cancel (or amend) the auto-renewal agreement. If this time period elapses without such notification being delivered to the vendor, the contracting entity is obligated to continue to pay for those supplies or services for another period as described in the contract.
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  • Critical services such as a third-party laboratory engagement or patient transport are excellent candidates for auto-renewal agreements. However, as with any supply or service, both prices and needs may change over time. MediTract CLM has built specific logic tailored to auto-renewal agreements that requires the user creating or amending an auto-renewal contract to enter data specific to the terms of the auto-renewal notice provision. This ensures that the contracting team receives adequate notification of an impending auto-renewal to allow for review of the agreement as well as notification to the vendor of intent to terminate or amend the contract without penalty.

Standard term, evergreen, and auto-renewal contracts can all play important roles in meeting your health system’s needs while containing costs. Because needs and prices for supplies and services change over time, it is essential to regularly review all contracts—particularly evergreen and auto-renewal. MediTract CLM makes it easy to track and review evergreen and auto-renewal contracts for necessity and advantageous pricing so you can terminate or amend the contracts at the appropriate time, if necessary. Gain complete visibility into all your contract relationships with MediTract CLM

Author:

Brooke Brown, RN, BSN

Senior Director, Product Management

Brooke Brown joined TractManager’s Contract Management division in 2017

 

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