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

 In Revenue Cycle Vendor Contract Management

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

Great vendor relationships play a vital role in helping hospitals reduce costs and maximize reimbursements while improving the patient financial experience. However, identifying the best vendors upfront and negotiating the most favorable terms can be challenging. In the first of this three-part series, we laid out six essential steps for sourcing the best vendors. In Part II, we will cover the critical process of negotiating the contract to get the best deal. This includes existing contracts. If you haven’t benchmarked your current vendor contracts in more than two years, you could likely reduce your vendor cost to collect from 5% to 30% by doing so.

Define a win

First steps first: You need to identify what a win looks like to your organization. Start by defining what you require, beginning with service standards, and concluding with budget parameters. One thing that can derail your efforts right from the start is to use your previous contracts as the basis for new contracts. It’s okay to look at what you did in the past, but you need to question why you chose the terms you did. Now is the time to take a fresh approach. What is the best possible scenario for your organization? That’s how you define your win.

Outline the leverage landscape

Now that you know what you need, it’s essential to take stock of your assets and determine how they can be leveraged and at what point during negotiations. Likewise, it is necessary to identify your areas of weakness and to take a more in-depth look into the vendor’s ability to fill that gap. Many times hospitals overlook this information during sourcing and end up engaging multiple vendors for duplicate services or for services they don’t need. Understanding the leverage landscape ensures you have the insight you need to win.

Prepare to win

Now that you’re “armed” with information, you’re almost ready to begin negotiating. Almost. This is the point at which you study your game plan. Just like preparing to purchase a car, you first study the value of the car you’re trading in and the car you want to buy. You compare those prices against other dealers in your area. Now is the time to study your plan and your potential counters. Re-review your needs and determine what you would be willing to concede. Now that you’ve identified your and the vendor’s assets, you can make more strategic moves. Every asset is a card, and now is the time to map out when to play what card. Note: This process requires discipline, which is hard. But it’s critical for winning.

Communicate the plan

Once you have your strategic game plan, you should share it with your team, the CEO, CFO, and other revenue cycle stakeholders. Emphasize the importance of being on the same page and “standing together.” One weak link can cause you to lose your leverage, which then undermines the entire process. It happens all the time. As negotiations progress, it’s essential to keep your team informed and to reemphasize the need to stay strong.

Negotiate from a place of strength

You should now be fully prepared to negotiate. Following are nine guidelines that will help you be successful.

  1. Be reasonable. Negotiating in bad faith destroys your credibility from the start. Begin with a positive opening statement. Your demands should be legitimate or no more than a borderline stretch. That said, it’s okay to blame the board or your organization’s financial situation when needed. If you have comparisons, use them to force the vendor to give you their best offer. And be prepared if they say “no.” That’s okay, even expected at this point. Just remain patient and reasonable. Leave emotions out of the equation.
  2. Never accept the first offer, even if it meets all your criteria. Have you ever asked for a 5% raise and it was accepted right away? The first thing you think is that you should have asked for more. In fact, many experts believe negotiations don’t really start until after the first “no.” But don’t say no without reason. You don’t want the vendor to feel deflated as it may taint future interactions or negotiations.
  3. Forget your emotions. Negotiating a contract is a business transaction and nothing more. Emotions only serve to cloud your judgment, and when that happens, you lose your leverage. Instead of raising your voice, focus on improving your argument. If someone’s going to get emotional, let it be the vendor. And that’s not necessarily a bad thing as it can help you gain the upper hand.
  4. Silence is your trump card. Most people are uncomfortable with a long gap in a conversation and will quickly try to fill it. In negotiations, the first person to fill that silence actually takes a step towards retreating. It’s important to stay focused, say what you have to say, then stop talking. If negotiations are taking place over the phone, you can use the mute button to help refrain yourself and your team from speaking first. Remember, silence is your ally, so don’t rush to fill it with noise. You’ll likely do more harm than good.
  5. Listen, then talk. Talking too much exposes information that your adversaries can use against you during negotiations. Leave that to the vendor. When you do talk, choose your words wisely, always remembering guideline #4. Say only what you need to say, then stop talking and listen.
  6. Know your list. This goes back to the beginning when you identified what success looks like for your organization. Keep this image top of mind and try not to lose sight of it at any point in the process. Once you get what you need, let go of the rest. There’s no value in going beyond that point. If a deal doesn’t come to fruition, it’s okay to walk away. Sometimes the best deals are those you don’t make.
  7. Be cautious with deadlines. Most of us are best when working against a deadline, but when it comes to negotiation, a deadline can quickly become a liability. End-of-year quotas can trigger false urgency levers that can derail a successful negotiation. Deadlines are just tools, not ultimatums, so use them sparingly.
  8. Be comfortable with a called bluff. A bluff can be a valuable tool, but when called out, it can also cause distrust and stall negotiations. If you say you can only bring on one more vendor this year, have a contingency plan to go to if you’re challenged.
  9. Stay focused. Terms are rarely agreed upon during the first discussion. Remember to keep the big picture in mind and not get caught up in the moment. You must remain cognizant of when discussions veer off-topic and then work to refocus the conversation. Go back to your opening statement often, and remember why you need this.

There’s nothing wrong with walking away. Some of the best deals are the ones you don’t make.

In Part III of our blog, we’ll look at more ways to streamline the sourcing and negotiation process and learn what successful hospitals are doing to succeed.

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