Pricing Accuracy Starts with Smarter Contracts

I recently returned from HIDA’s 7th annual Contract Administration Conference,

which focused on improving pricing accuracy and reducing mistakes and rework. This year, one of the big takeaways was that many contracting problems could be resolved if we worked to build more supportable contracts from the outset.

In their attempts to remain competitive, salespeople often agree to contract terms that their operations team cannot automate or measure. They make exceptions, customizations, and accommodations for specific provider requests without consideration for how the contract administration team will interpret these complex, sometimes conflicting agreements. Although such flexibility is often seen as a sign of dedication to patient care, it can have unintended consequences. Speakers and participants at the conference noted that: ʯ When customers start layering multiple local and national agreements with different terms, they exponentially increase the likelihood that those terms will not be supportable by the supplier. ʯ Lack of clear language and consistent practices results in a great deal of customer confusion around their own contracts and pricing. ʯ Often customers will sign multiple competing contracts that impact their pricing for a single product. This leads to contracts being re-written and re-worked.

In order for our industry to reduce the rework we are conducting across the supply chain, we must improve our contract creation processes. Among the best practices we should keep in mind:

ʯ Key terms and requirements should be clearly defined,

so that anyone reading the contract will understand what’s expected. Focus on terms that matter the most for our contracts and consider what data is needed for compliance/reporting.

ʯ Companies should internally standardize their

contracting language and processes, to reduce the misunderstandings and rework that come from vague terms and unique contract provisions.

By Manpreet Kaur Sandhu, Program Manager: Supply Chain Collaborative, Health Industry Distributors Association (HIDA)

In order for our industry to reduce the rework we are conducting across the supply chain, we must find ways to standardize our contract creation processes.

ʯ Organizations should build stakeholder consensus

surrounding exceptions. Sales teams must communicate with their internal contracting teams from the beginning of the contracts process in order to determine when exceptions can be made and how they will be approved. If every exception is considered unique and essential to the contract, then they won’t be able to arrive at standard templates that can be replicated across partnerships.

Developing clear and consistent language in contracts helps all partners to have a simpler understanding of contract terms, and this transparency can help build trust between partner organizations. This standardization also helps the operations team transform the contract terms into data points that can be understood at aggregate levels and support future automation of contract administration work. In today’s era of labor shortages, simplifying contracting processes is essential to remain competitive.

HIDA is launching a new workgroup dedicated to the Contract Creation process. We hope to help the industry develop some of the best practices and standard templates that will enhance pricing accuracy and allow customers to focus on patient care.