The Most Critical Steps for Sourcing Vendors and Negotiating the Best Contracts: Part I

 In Revenue Cycle Vendor Contract Management

The Most Critical Steps for Sourcing Vendors and Negotiating the Best Contracts: Part I

As self-pay accounts continue to skyrocket, the role of collections vendors becomes increasingly valuable to health systems of all sizes. Today, nearly a third of hospitals employ between 10 and 15 vendors, with the largest majority spending between 21 – 30% of their budget on those partnerships. All vendors aren’t created equal, and hospitals need to be extremely diligent in their evaluation and choice of collections partners. Today, 64% of hospitals report being unsatisfied or unsure of their vendors’ performance.

In this three-part blog series, we will walk through the essential steps of sourcing the best vendors and negotiating the most financially beneficial contracts. In Part I, we will focus on sourcing.

Before you begin

The first, most important part of sourcing a new vendor is clearly defining your strategy and building your business case. What are you looking to achieve? What’s in scope and out of scope? Be sure to consider lessons you’ve learned from past vendor relationships and use them to help inform your strategy. This defined strategy then acts as a foundational gauge with which to ensure you’re staying on track during what can be a complex process. At this time, you’ll also want to assign an analyst to lead the initiative and to develop a vendor database.

Following are six essential steps—in order—of an effective sourcing process.

Look to the marketplace

When it comes time to identify potential candidates, there’s no need to reinvent the wheel as there are great resources already available. Although some require paid memberships, many provide basic information and client rankings for free. The HFMA Buyer’s Resource Guide provides a comprehensive list of a variety of vendors, from early-out to revenue cycle outsourcing, at no cost. You’ll find a short description of each vendor’s services, along with contact information.

Another option is to ask your other non-competitive vendors or peers for their recommendations. Word-of-mouth is an often over-looked valuable resource. Once you have built this network, you can go back to it in the future as needed.

Conduct exploratory calls

By the second week of your sourcing project, you should be ready to start making calls. At this point, you’re not trying to choose a vendor; you’re just trying to get a feel for the landscape and understand what each vendor has to offer. Having this information can help you further refine your requirements. Be prepared with a list of questions, including how the vendor approaches customer evaluations.

Note that this is not yet the time to talk about price. Pricing is always negotiable, but people, process, and experience are not. This is the time to focus on the latter.

Prepare your spec sheet

By the end of the second week, you should have the information you need to develop your spec sheet. It should include simple facts like volumes, average balances, and account aging. Items you’ll want the vendors to provide include: pricing, references, experience with Epic, and cyber-security processes.

One thing to avoid is spending time populating an old RFP template. All the information about your hospital is available via AHS and other subscription sites. Trying to gather the data manually can put your efforts significantly behind schedule. Also, you want to leave out items that don’t matter. For example, if you’re sourcing a coding vendor, they don’t need to be local.

Extend invitations, but start small

As you gather vendor information during the second week, you should find a few that stand out as contenders. Now is the time to invite them to present, but don’t go crazy. Looking at 10 – 20 vendors are way too many, although three is probably too few. Aim for four to six and make the conversations brief. Encourage your vendors to document all of their questions, but don’t feel the need to answer all of them at this time unless specifically asked. Of course, you’ll want to share your process and timeframe.

It is important to note here that your revenue cycle management team, along with finance, should be taking the lead on choosing your candidates, not your supply chain department. While the supply chain is good at choosing commodity materials and equipment, selecting a revenue cycle vendor is about more than just pricing and the lowest bidder. It requires the expertise of seasoned rev cycle professionals.

Narrow the field and begin presentations

By the third week, you should have two to three proposal presentations scheduled. These should be kept short—no more than an hour each. Use a scoring grid based on your chosen criteria and compare notes with your team immediately after. This can’t be stressed enough as small details can get lost if moving directly from one presentation to the next. Be sure to evaluate the vendor’s leadership team and ownership as these things are equally as important as service offerings and price.

During your post-presentation discussions, you may want to include a review of each vendor’s references. This can enhance the effectiveness of these discussions by allowing you to identify better which of each vendor’s qualities matters most.

Identify the best fit—sans pricing

Are we telling you to decide without discussing price? Yes and no. The best decisions are made by first focusing on vendor functionality, company culture, and leadership. Using these criteria without consideration to price provides better insight into the best vendor with which to build a mutually beneficial, long-term relationship. After this, you’ll want to discuss implementation and resource consumption. Are you ready—and able—to support your preferred vendor’s needs?

Discussing price too soon can muddy your perspective and lead you to overlook important, but less tangible elements that you might regret down the road. For example, choosing a collections vendor that doesn’t value the patient financial experience can damage your hospital’s reputation and cause patients to go elsewhere in the future. In this way, the best-price vendor may cause more harm to your bottom line than a more expensive vendor that embraces a patient-centric approach.

Also, remember, the sourcing process is about making an internal decision that aligns with your broader revenue cycle strategy. It’s not something to be announced or awarded.

Stay tuned for Part II of our blog where we’ll discuss essential steps for negotiating the most financially beneficial contracts, including how to get the best pricing and the most appropriate SLAs.

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