5 Critical Elements For An Optimized Contract

This article was written by Jacqueline Oberst.

Many factors are needed to successfully negotiate a telecom contract. This article identifies the 5 critical elements for an optimized contract which we recommend are included in all healthcare agreements.

Why your hospital needs a well-negotiated agreement

A well-negotiated agreement is vital to effectively manage your hospital’s telecommunication services. In addition, the healthcare sector has specific considerations that must be included to ensure service and financial stability. Each contract requires appropriate terminology to ensure those points are included.

During the negotiation process, initial proposals will be provided by vendors that must be carefully reviewed and negotiated to incorporate the following five critical elements.

#1: The contract term should never exceed 3 years.

Many vendors will offer agreements extending up to 7 years, offering deeper discounts for a longer term. Initially, this may appear to be an attractive choice as it provides cost savings and consistent billing for a fixed term.

The reality is that telecommunication services and pricing are constantly evolving. Locking your hospital into any term which exceeds 3 years potentially locks you out from better pricing.

At VIE Healthcare Consulting, our standard recommendation is the negotiation of a 3-year agreement with pricing proposed for the longest term to ensure your organization secures best-in-class pricing.

#2: Contract structure flexibility

The healthcare industry is a fluid environment where hospitals and healthcare systems often add to, remove and relocate their facilities. This changing environment must be reflected in your telecommunication agreements.

That requires hospitals to negotiate and incorporate terms to allow for these changes. This, in turn, prevents termination fees and other costs associated with decommissioning a facility.

#3: Commitment Levels

At VIE Healthcare, we know that many vendors require hospitals to agree to monthly, annual or term commitments, but these levels are frequently based on different factors.

Call usage and monthly recurring costs are two common examples.

These minimum level requirements are tied to vendor financial stability. It is essential for your organization to carefully evaluate actual utilization to determine the optimal level that can be realistically maintained throughout the contract term.

Usage levels have a higher tendency for incurring shortfall charges. These costs represent the difference between actual usage and the minimum commitment level.

The good news is that while vendors may require these financial levels, we often find that they are willing to set them at a level below expected utilization.

#4: Payment Due Dates
Standard payment terms for telecom vendors are net 30 days.

The reality is, however, that hospitals cannot review and process monthly telecom invoices within 30 days.

This term, therefore, ensures that the vendor can charge 18% per year in late fees and these costs can often go undetected or hidden within a large invoice.

For larger healthcare systems, this could amount to well over $150,000.00 per year.

Our recommended best practice is the negotiation of payment terms of either 45 or 60 days.

#5: Error Corrections

Many vendor agreements include a clause for identifying and correcting billing errors. These terms allow for resolution and overcharge refunds within 30 to 60 days of the billing error. This is an unrealistic expectation.

We have frequently found that billing errors may not be detected for several months after the initial occurrence. This is mainly because hospitals and healthcare organizations simply do not have the internal resources to analyze invoices on a monthly basis.

Any terms limiting a time frame associated with billing errors should be removed.

A vendor should be willing to refund all overcharges to their customers, irrespective of when the error was identified.

The nature of a fully negotiated agreement lends itself to protecting a healthcare organization from unsuspecting charges such as late fees, early termination fees and shortfall charges. Each of these has the potential to add significant unplanned costs.

Since 1999, our team of experts in healthcare telecommunication cost reduction and management has realized a sustainable 25%-40% in cost savings for our clients. Our extensive knowledge of the telecom industry provides organizations with guidance to guarantee best-in-class agreements.

To learn how VIE Healthcare can help your organization, call our office today at 1-888-484-3332, Ext 500, or email us at info@viehealthcare.com for a complimentary consultation.