The Importance of Understanding Contractual Partnerships with Your Medical Supply Vendor

Kaitlyn Johnson

The healthcare industry is evolving rapidly and this has never been more apparent as with the onset of COVID-19. For many hospital finance teams, such as yours, understanding the state of your equipment and subsequent contractual agreements has been thrust into the spotlight. Growing demands for more equipment — such as ventilators and remote monitoring technology — are necessary to meet the evolving landscape of patient and clinician needs.

Whether COVID-19 is bringing to light your own economic pressures of healthcare in this evolving landscape or you’re simply wanting to understand current-state vendor agreements, it’s important to be mindful of certain caveats. Knowing and understanding the language of your commitments in various categories only further supports your hospital’s financial feasibility. To ensure you’re optimizing spend and providing adequate support to your clinical staff on what you’ll be held accountable for, we’ve outlined three guidelines to enhance your awareness for an improved agreement.

1- Confirm what products you’ve committed to buying before signing

An important aspect of your agreement is to understand the control you have over consumables and equipment delivered to your facility. If a piece of equipment has ever appeared at your hospital without having knowledge as to where it came from, you may be surprised to find that it comes from your vendor.

Some agreements include language enabling your vendor to send you equipment based on its sole discretion and not on the needs of your facility. And once the equipment has been opened, you may now be responsible for purchasing the equipment. Ensure the terms around equipment are clear and agreed upon by both parties so you don’t receive any surprises.

Another aspect to watch for is the capital agreement on equipment. Some vendors use the list price of equipment when drawing up an agreement. This can, unfortunately, result in a higher equipment balance for you to pay down and fewer deliverables from your vendor. When reviewing your agreement, ensure you clarify as to if list prices versus cash prices are noted.

Additionally, it’s also important to understand if your vendor contract has any annual price increases built into the language. Some contracts build in annual price hikes on sensors or other consumables. While you think you’ve committed to one price when you sign the contract at the onset, that price may increase over time.

With Medtronic, our pricing is usually listed within an agreement as if our partner was paying cash and we typically do not inflate to list pricing. This is important to us because you are our partner and we believe that an agreement should be mutually beneficial. We strive to earn your trust by being clear and transparent with you so we do not compromise the integrity of our partnership. By ensuring pricing is clear and transparent, you benefit through cost savings and we benefit by building a foundation with you — built on the support of our equipment in helping your patients.

2 - Understand when and how your agreement ends

While the end date of your contract may seem straightforward, that may not always be the case. You may have satisfied your final consumable commitment early, which you assume releases you from the contract at the earlier date. Depending on the specific language written into your contract, you may not be released and may, in fact, remain locked in to your contract longer than you expected.

This can occur in many long-term contracts with language that muddies the water as to when your agreement ends. If, for example, auto-extensions are built into the language of your agreement and if a specific SKU is missed, your contract may be extended with a lack of clarity provided to you around the new contract end date.

When you’re reviewing an agreement, ensure you are aware of this and you understand how it works. Also consider how this impacts your hospital facility and if this is an acceptable term of the agreement. If it is not, renegotiate and avoid being locked into a commitment that could become an endless loop of auto-extensions and a never-ending medical supply contractual agreement. Always ask for clarity on unfamiliar language with your vendor — before you sign.

An additional aspect that you should be aware of is if you have contractually mandated evaluations on the clinical equipment you’re purchasing. Some contracts include language obligating you to involve your current vendor in the evaluation of competing equipment.

With Medtronic, we strive for full transparency with you — our partner — with every agreement. If we’re not meeting your end goal, we want you to reach out and will work to support you. If you’re not satisfied with your current contract, we recommend beginning these healthcare finance conversations as early as possibly — at least 12 to 18 months prior to the end of your contract.

Even if you’re not a current Medtronic partner we want to support you so that your healthcare facility is protected and you can continue to focus on care delivery excellence for your patients. We believe in absolute transparency with you.

3 - Equipment ownership timing does differ by vendor and contract

Before signing an agreement, ensure there is clarity around ownership of equipment and when that ownership begins. If you want to own your equipment outright, be sure to understand if there is the potential to do this and, if so, review the language around what occurs on the backend of the agreement.

It’s also important to note that when equipment is shipped to you, a liability is created of which you must satisfy through your purchases.

We value your desires and if you want to own equipment outright, then ownership of our equipment transfers to you at the time of your signature on the agreement — and there’s no ambiguity around that.

Lastly, understand if your agreement includes clinical product specialist training or not. You’d be surprised to find that training your staff on certain products may come at an additional cost.

What you can expect from us

At Medtronic, we strive for more than simply being a vendor that fulfills your equipment needs. Our values are deeply entrenched in improving the healthcare landscape and we can only do so by going further, together with you — our partner. Even though we are a for-profit business, building a partnership with you supports our internal values of altruism — providing support to your clinicians so that patients’ lives are enhanced. And for us, that means developing a mutually beneficial agreement, which is why we remain committed to meeting you where you are with your needs. We’re also proud to be flexible and transparent from day one in our agreements.

During the life of your agreement with us, you can expect an amortization schedule of your liability over the term so you understand where you stand, always. We also solicit and welcome your feedback to help us to continually improve and to support your facility. We’ve implemented solutions directly from the feedback that our partners have provided and we’ll do the same with you and your staff.

We believe there is value beyond the product and that is the value of our partnership with you. This ensures we continue to deliver on our altruistic goals of supporting the lives of patients and clinical staff from around the globe.

Reach out and connect with your Medtronic representative to further discover other additional insights on medical supply vendor contracts as well as how you can participate in an annual savings of up to 15 percent in your current contract.

TOPIC: Nellcor™ Pulse Oximetry