Archive for March, 2012

03/29 2012

Vendor contract management practices: U.S. vs. Australia

On a recent business trip to Australia visiting public and private hospitals, I noticed some major differences from the U.S. in how contracts between hospitals and vendors are managed. Vendor contract management is a notoriously sore issue for U.S. hospitals where vendors negotiate inconsistent terms – for prices, par levels, and consignment agreements – not only from one hospital to the next (even if it’s across the street), but even among hospitals that are part of the same IDN or group.

A few months back, I was speaking with the head of an Interventional Radiology department at a major teaching hospital in the U.S. that uses our IT solution VueTrack™ to manage its clinical inventory and to document product usage for patient care. He told me that that a sister hospital had recently borrowed a few inventory items as they were out of stock, and he was shocked to find out, in the process of settling the cost of the loan, that the other hospital had contract prices for the same SKUs that varied as much as $300 in either direction per item. How could it be that two hospitals that are part of the same IDN in the same city with comparable patient volume were subject to such pricing discrepancies?

For one, I believe that it’s due to the lack of centralized, coordinated negotiation practices between materials management at the corporate or group level and each vendor. Second, another culprit is the lack of a technology that can electronically capture the details and terms of each vendor contract as a way to make the information available across a hospital chain and ensure that price changes are reflected immediately throughout. What is remarkable is that it still seems to be common practice in the U.S. for each individual materials management department or clinical department head to negotiate directly with each vendor, rather than using the bargaining power of multiple hospitals sitting at the table.

In Australia, I found out that hospitals are usually organized in groups. Either they are part of the public system, which is managed by each state, or they are part of a private group that transcends state lines. Either way, negotiation with vendors happens on a periodic basis (e.g. 2x/year), and typically vendors must compete with one another for the business of hospital groups. As a result, the price of any given SKU at public hospitals within the same state will be identical regardless of the size, practice, and location of the hospital. Similarly, some pretty powerful private hospitals use the same practice and ensure cohesive and standard pricing and terms across all their hospitals. The result is a much more transparent process that benefits both hospitals and vendors. No more mystery about the price of an item, and the process of purchasing, reimbursement, and billing become a lot simpler.

VueTrack™ tracks pricing, reimbursement codes, billing codes, and consignment details to ensure that from materials management to the clinical staff, all the information they need about their clinical inventory is always available at their fingertips.