The Best Ways For Hospital Supply Chain Leaders to Negotiate Vendor Contracts

Learn the 10 best practices to strengthen your hospital’s negotiation strategies.

To secure the best possible terms and pricing in your vendor contracts, your supply chain must be highly skilled in negotiation strategies. That requires health systems to identify the best ways for hospital supply chain leaders to negotiate vendor contracts.

But with so many vendors to contend with, hospitals often find themselves overwhelmed at the prospect. Additionally, vendors receive extensive negotiation training to protect their margins, training which, in our experience, is not offered across healthcare supply chains.

Without a solid strategy, healthcare supply chain leaders are unlikely to secure the agreement and pricing they want.

At VIE Healthcare®, we are often asked to train healthcare supply chain leaders in the art of negotiation. Our experience negotiating with different healthcare vendors since 1999, has given us exclusive insight into the many variables that affect positive negotiations. These include emotional and mental blocks that may damage a good working relationship and negatively affect potential profits.

Most importantly, hospital supply chain negotiators should understand that good negotiation are not about winning or losing. They are about creating positive partnerships that result in a win-win outcome for all parties.  According to Jack Canfield, best selling author of ‘’The Success Principles’’ profitability happens when there are benefits going both ways.

Your hospital’s ultimate goal should be to achieve a meaningful and mutual payoff in the relationship.

At VIE Healthcare®, we operate on the basis of this philosophy.

We’ve outlined the basics of our successful negotiation strategies below. Our process begins, however, with the following 7 negotiation principles.

Top 7 negotiation principles:

1. Preparation: Prepare before and after negotiations by evaluating your own weaknesses and strengths. Evaluate the other party’s weaknesses and strengths too. Determine your desired outcome and also determine how you can change any undesirable outcomes after the first meeting. (Our bonus negotiation checklist can be found at the end of this article, offering specific steps on how to prepare before and after your next vendor negotiation meeting).
2. Research: Collect and analyze data about the vendor’s pricing, legalities and understand their internal procedures. Research their industry and company operations.
3. Networking: Discuss similar scenarios with other hospitals or peers to understand standard pricing and terms for the same service or products utilized within your industry.
4. Meeting: Determine who will be attending; agree on the agenda and confirm how much time is available to discuss terms. Determine the location and how you expect the meeting to end.
5. Information exchange: Exchange information about each other’s operations and goals to enable both parties to work towards a mutually beneficial result. Learn about challenges within their own organization. Opposition to your proposals might originate from internal obstacles, rather than from individual negotiators.
6. Decision making: Plan how to move forward after each meeting. Determine what you will negotiate at each meeting. Stick to priorities and enter all negotiations with clearly defined objectives beforehand.
7. Negotiating: Determine how you will approach certain issues. Transform a disagreement into an agreement by “chunking.” Chunking is the process of transforming a disagreement into an agreement in chunks. (Refer to our section below on how to transform a negotiation disagreement into an agreement for details about this process).

Each of these principles is expanded further below.

Top 10 best practices for your hospital vendor negotiations

1. Don’t be afraid to ask

Good negotiators always ask for everything, but they also ensure they don’t agree to something they didn’t want. This means to ask for absolutely everything first. Be specific about the things you do and do not want.

2. Never negotiate against yourself

Once you make an offer, wait for a response before making another offer to avoid rejection of your initial proposal. You might end up making further concessions in a revised bid.  You’ll also want to gain insight from their response and prevent them from holding off on their initial reply in the hope of gaining a better deal.

3. Get it in writing

When parties fail to live up to an agreement, written proof of the negotiators’ intent is critical. Written agreements are also helpful if the original negotiators change jobs or no longer work for the vendors. In addition, they prove that you did your job correctly.

4. Prepare before and after negotiations

Preparation is key, but you must be specific about your goals. It’s important to list your exact expectations both before and after negotiations.

5. Determine the extent of the other side’s authority

Negotiate with someone in authority to reach an agreement. When negotiating with someone without authority, you’ll need to ensure that person agrees with your position and understands the rationale behind it in order to convince someone else of its merits. This requires a doubling of efforts with a riskier outcome.

6. Know your bottom line

Knowing your bottom line prevents your hospital from agreeing to something that will simply not work for you. It is critical to understand what you want prior to the meeting so you’ll know when it’s time to end negotiations. Do not negotiate beyond your needs and fail to secure a satisfactory agreement.

7. Establish a fall ­back plan

Know your best alternative for when you face an unsuccessful negotiation strategy session. Without a fall ­back position, you are left with no alternative but to negotiate until a deal is reached, even if that agreement is unacceptable.

8. Listen to the other side

Good negotiators are good listeners and good communicators. You’ll learn more by asking open ­minded questions than you by cross-examining. Be willing to brainstorm and explore options and be empathetic to the other side’s challenges. There may be variables outside their reach that can affect negotiations, such as a difficult line manager. Try to regard the negotiation process as a problem that both sides are collaborating on to reach a solution.

9. There is no substitute for discussion

Many people don’t like to argue, and therefore, fail to discuss important issues. Negotiations should not become arguments. It is possible to discuss difficult issues without heated debates and avoiding tough issues is not simply productive for anyone. (Refer to our section below on how to turn a negotiation disagreement into an agreement for further explanation and instruction about this process).

10. Avoid form contracts

Form contracts merely drive negotiators toward a predetermined result, usually from one side, or have a detrimental impact on negotiations. The draft contract must be straightforward and 100% reflective of your discussions. Finally, never sign anything that you have not read completely and understood fully.

How to develop negotiation skills

Many supply chain executives would rather avoid vendor negotiations, but it’s essential for your supply chain to develop strong negotiation strategies and skills for your hospital to thrive in today’s unpredictable healthcare environment.

Here are some negotiation strategies to perfect before your next vendor meeting.

• Document your specific goals and objectives.
• Control your emotions during heated discussions.
• Absorb new information by taking notes.
• Ask questions to better understand their position.
• Create an agenda.
• Understand the total budget, concept price is based on time and energy, money, and emotions.
• Understand who is “calling the shots” before any presentation.
• Clarify their pain but don’t create it.
• Document, track and move forward from negotiation meetings with accurate next steps.

How to determine contract pricing

A concept price is based on three basic factors. These are:

• Time and energy.
• Investment.
• Emotions.

Time and energy refers to the time and energy it takes for a vendor to manufacture a product or deliver a service. As with all products and services, it also takes a certain amount of initial investment to produce a product or deliver a service. You concept price will then include the price of “time and energy” and initial “investment.”

Finally, and perhaps the most difficult factor to contend with is the emotion a vendor feels about their product or service. They may feel it is worth more than the market standard, therefore pricing it higher than expected.

This is why it’s important to research the facts and market standards prior to your meeting.

How to transform a negotiation disagreement into an agreement

Chunking is a term we use to describe the process of changing a disagreement into an agreement by breaking it down into chunks and tackling each piece separately.

Below are six principles we utilize to transform a disagreement into an agreement.

• DO NOT debate an issue to the point of no return. We can’t emphasize this enough. If the first talks result in disagreement, there is always a chance to regroup, reevaluate and try again. There is never justification for heated debates.
• Break the matter into two, three or four stages and address each one at a time. This is the very foundation of chunking. Addressing each part individually helps to see where the disagreement lies and can be dealt with accordingly.  You might discover that what seemed to have been a significant disagreement, might have only been a small piece of the overall matter.
• For initial or follow-up discussions, always start with the most likely area for agreement first. This breaks the ice and prepares the way for discussions about tougher issues later.
• Exploration and dialogue are more likely to transform disagreements into agreements than debates. As we’ve mentioned earlier in this post, sometimes a disagreement is the result of internal operational blocks preventing the decision maker from moving forward. Open dialogue about each other’s concerns helps to alter existing terms so that both parties can benefit.
• Finding out what you “do” agree on before you explore what you “don’t” will positively change the dynamics, resulting in more agreements and save time. During exploration, you will identify patterns and clues that indicate equal agreement on a subject. Take note, and work to finalize this part first.

Negotiations can be either scary or invigorating, depending on your skill level and confidence. Either way, hospital purchasing professionals must absolutely become skilled negotiators, utilizing negotiation and tactics, negotiation skills and negotiation strategies to finalize the best possible pricing and terms for their healthcare organization’s vendor contracts.

Our bonus checklist will help to keep your hospital on track.

Bonus: VIE Healthcare’s negotiation checklist

Before a negotiation

• What do you want to achieve from the negotiation?
• What do the other parties want to achieve from the negotiation?
• How will the issues be discussed?
• What is the worst possible way that the discussion can play out, and what would you do?

After a negotiation

• What were the positives arising from the negotiation?
• What were the negatives that came out of the negotiation?
• What would you do differently next time?
• What do you need to do now to make the most of the first negotiation outcomes?
• Who will follow up the actions?
• Who will circulate the reports?
• Who will organize the next meeting?

VIE Healthcare® offers specialized negotiation training for healthcare supply chain executives and all hospital employees involved with vendor agreements.

We also benchmark and analyze new and existing vendor contracts on behalf of healthcare organizations across the country and negotiate best pricing and terms for our clients.

Would you like support to help your hospital achieve its cost savings goals? Schedule a call with Lisa Miller.