Contracting In The Healthcare Sector
Healthcare institutions contract several individuals and entities on a regular basis to deliver their services. During any given time, the average hospital is under contract with pharmaceutical suppliers, medical supply vendors, equipment providers, vendors for transport services involved in procurement and patient transport, and individuals such as doctors and nursing staff.
The sheer number of contracts in circulation for any healthcare institution results in numerous challenges & inefficiencies, especially if institutions still rely on manual & paper-based contracting practices.
Hospitals already face numerous obstacles, including uncertainties in delivery & supply, mismanaged & misplaced vendor contracts, high storage expenses, and non-compliance with regulations. These are exacerbated due to the inefficiencies inherent to paper-based documentation.
AI-powered contract lifecycle management software enables healthcare institutions to mitigate and manage the risks created due to high-volume contracting.
AI-assisted contract drafting, contract lifecycle tracking, centralized storage, and eSignature integrations all allow hospitals to make contracting more efficient and go paper-free.
Before examining how AI-powered contracts can prove advantageous to healthcare providers, let’s look at current contracting practices in the healthcare sector.
Types Of Contracts In Healthcare
Most hospitals employ three types of contracts to deliver health services.
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Entry contracts
These agreements entitle the contractor to deliver a specified range of services to a specified group of beneficiaries. The contract specifies the terms the contractor must meet to become and remain eligible for reimbursement.
Under such contracts, the contractor is subjected to performance pressure – to maintain a modicum of quality in the services provided and attract service users.
An example of this is when the Indian government impaneled private laboratories to provide relief in COVID-19 testing; these laboratories were reimbursed based on a national scheme.
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Service contracts
These are agreements in which the authority specifies the range of services to be provided by the contractor to an identified segment of people, for a specified period, at an agreed cost.
Unlike entry contracts, service agreements operate on an exclusive basis – service users are not granted the choice to pick their service providers. However, the quality of service expected and the method of quality measurement will both be defined in detail in the contract.
An example of a service contract is when the Ministry of Health of a country contracts a hospital to provide treatment for a specific disease or condition.
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Concessions
These are formal contracts in which the authority provides authorization for a specific contractor to provide a defined set of services, to an identified group of people, for a specific period.
Concessions are different from entry & service contracts in that the service users themselves will have to pay for the services availed.
Since each contract type offers its own advantages & disadvantages, hospitals and healthcare institutions must carefully choose the appropriate contract type before proceeding.
Once a contract type has been settled on, most hospitals follow the same four steps in their contracting lifecycle. Each step in this lifecycle creates its own set of risks and obstacles; in the interest of clarity, let’s examine each one.
The Four Key Steps In Healthcare Contracting
The vast majority of hospitals follow a contract lifecycle along with these four steps.
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Define the contract, its purpose, and its structure
This is the step covered above, where the contract is decided and drafted according to the specific purposes required by the respective healthcare institution.
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Plan the procurement process
In this step, the procurement process for the service or product is planned to ensure smooth & hassle-free procurement.
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Procure and sign the contract
Here the contract is procured, either through bidding or following the decision of an executive body, and signed.
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Monitor contract performance
The final step involves the close monitoring of the vendor or supplier to ensure that the contract is upheld.
The challenges and risks associated with each step are unique and must be addressed separately.
Next, we examine the risks peculiar to each step in the healthcare contracting process.
Identifying Risks In The Contracting Lifecycle
As mentioned before, each step in the healthcare contracting cycle presents a unique set of challenges and risks to healthcare institutions.
Here we identify a subset of these challenges for each step.
Step 1: Defining the contract
Challenges & Risks:
When defining contracts, uncertainty is among the most daunting challenges to overcome. The risk of uncertainty often makes it difficult to establish the nature and extent of services required.
Healthcare institutions are sometimes ill-equipped to decide the best fit for specific policy objectives and the suitable payment methods for delivered services. Foretelling the impact of a contract and consequently drafting in accordance with budgetary limitations is also a unique challenge.
Transactions costs for services are also subject to change, making the exercise of contract definition even more challenging.
Step 2: Planning procurement
Challenges & Risks:
When planning procurement, healthcare providers must focus on the capacity of the market to provide the required services and whether the market structure is conducive to the timely delivery of these services.
Authorities must also pay special attention to the eligibility criteria used to pick contractors; additionally, authorities must decide whether a competitive selection process is feasible.
In essence, the challenges in this step can also be subsumed under the banner of uncertainty. Hospitals must make sure that both the market and market players are equipped with the capacity to deliver the specific services according to the contract.
Step 3: Procuring & executing the contract
Challenges & Risks:
The act of procuring a contract comes with its own set of challenges. The existing relationship between hospitals and contractors could be underdeveloped, resulting in an ill-equipped contractor being awarded a contract. To counter this, hospital authorities must ‘sense-check’ potential contractors to ensure their capabilities.
Additionally, due to the complex nature of such contracts, important requirements are often left out or are ambiguous. Healthcare providers must pay attention to the details of contracts to avoid instances in which essential clauses are unaccountably left out.
Finally, authorities must ensure that contract prices are reasonable. Due to the volatility of markets or unforeseen circumstances, contracts must possess a degree of leeway concerning payments. Hospitals must perform a cost estimate prediction at an early stage of the contracting process to ensure that the agreed-upon pricing is neither too high nor too low.
Step 4: Monitoring contract performance
Challenges & Risks:
Establishing trust is one of the main challenges unique to the monitoring step of healthcare contracting. Authorities will need to balance the need to procure large volumes of supplies and the risks associated with non-competitive procurement. If a procurement process is non-competitive, hospitals will have to establish mechanisms to ensure trust and transparency.
The need for trust is this great due mainly to a limited capacity for performance monitoring. A comprehensive monitoring process will involve verifying outputs against a concrete set of goals and making necessary revisions in real-time, neither of which are available to authorities in the paper-based contracting paradigm.
The most critical challenge for authorities to note is the difficulty in operationalizing a contract. While seasoned legal professionals can still provide a comprehensive account of all the deliverables expected, there could still be a lack of incentive to deliver.
While these challenges are difficult to overcome when leveraging paper-based contracting methods, AI-powered contract management offers a seamless and easy solution to most of these challenges.
AI-Powered Contract Lifecycle Management (CLM) Software
Smart Contract Lifecycle Management (CLM), simply put, is the usage of digital methods such as template-based drafting, online negotiations, digital storage, and eSign-based contract execution to manage the lifecycle of contracts.
Smart CLM solutions offer several features, including those mentioned above, to expedite and streamline the entire contracting process.
The nature of manual and paper-based contracting is often the origin of the various risks and challenges faced by healthcare institutions.
Hospitals often take 15-30 days to complete a single contract’s lifecycle, mainly due to paper-based drafting and manual contract execution. Staff efficiency is also adversely affected by paper-based contracting- the average knowledge worker spends half their time just searching for the right contract and works at a productivity rate reduced by 70-80%.
Lost or misplaced documents, lapsed contracts, and a lack of contract version control are direct results of manual and paper-based contracting. Additionally, hospitals’ large supply and procurement chains with their hundreds of stakeholders and rapidly changing conditions are not compatible with paper-based contracting.
How To Mitigate Risks Using Smart CLM
Hospitals require a flexible and expedient method for contracting. Smart CLM solutions offer a quick and cost-effective fix for these problems due to AI-based automation techniques and digitally streamlined contracting workflows.
Here’s how AI-powered CLM meets the challenges posed in the healthcare sector.
Step 1: Define the contract using AI suggestions
Contracts are defined using insights from an AI system. This system learns from previous contracts and suggests the appropriate clauses for the specific conditions of the contract. Templates can also be used to quickly draft contracts whenever there’s a need for speedy supplier onboarding.
Step 2: Plan procurement using learned insights
AI-powered contract insights enable authorities to learn from the contract performance of previous contractors and better plan the procurement process. These insights also help authorities understand what to expect from contractors and plan procurement accordingly.
Step 3: Execute the contract using eSignatures
While innovative CLM solutions are not equipped to assist authorities in the procurement process itself, the AI-powered insights offered could play a significant role in helping authorities select the right contractor or create the right procurement workflow.
Once the contractor has been decided, eSignature integrations allow for contracts to be sent and signed instantly by multiple signers. This feature additionally enables hospital authorities to make quick changes in their procurement cycles when faced with supply issues or market volatility.
Step 4: Monitor performance using AI systems
A lack of monitoring capabilities, as previously mentioned, is one of the biggest challenges faced by healthcare providers. Lax monitoring often leads to non-performance and non-delivery of contractually obligated services.
However, with the AI-enabled capabilities of smart CLM solutions, healthcare institutions can adequately monitor contract performance and obtain insights regarding the performance of every clause in the contract. These insights will also help authorities make better decisions regarding what goes into a contract and who to contract in the future.
Smart CLM software plays a vital role in controlling risks and overcoming the contracting challenges inherent to the healthcare sector. Here’s a final and comprehensive look at how contracting risks are managed using smart CLM.
Smart CLM solutions are becoming indispensable for hospitals to efficiently and cost-effectively manage their contracts. However, with the increasing popularity of contracting solutions, which smart CLM provider hospitals should choose is unclear.
Award-Winning Digital Contracts & Documentation
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SignDesk’s smart CLM solution is a lightweight and robust contract management system with features to automate the entirety of any contract’s lifecycle. Templates enable instant bulk drafting, digital negotiations streamline contracting, eSignatures enable remote contract execution, and meta-data tagging and centralized storage allow for superior contract organization.
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