June 29

9 Things to Negotiate with Your Purchased Service Contracts Other Than Price


We are all looking for the best price, fees, or rates with our purchased service contracts (PSC), yet these are only the obvious savings. You might be surprised how much more can be saved by negotiating these 9 things when pushing the envelope on your next purchased service contract as follows:

1. Term of Contract: Generally speaking, the longer the term of a PSC the lower the cost due to price protection, avoidance of market shifts, and a competitive landscape. This is a safe bet, since it is rare for the cost to go down for any purchased service contract.

2. Payment Terms: If you can negotiate 90-day payment terms, you can obtain a big cash flow advantage right out of the gate. I have even seen payment terms that read, “Payment is to be made when provider receives their payment from a third party.”

3. Cash Discount: If your cash flow permits, discuss a cash discount of 5%, 8%, or even 10% for a lump sum payment. This can add up to hundreds of thousands of dollars a year in purchased service contract savings for your hospital.

4. Average Pay Rate: If your PSC includes fixed pay rates, benchmark them against Indeed.com, PayScale.com, Salary.com or Glassdoor.com databases. This is the best way to ensure that your healthcare organization is receiving a competitive pay rate.

5. No-Fault Cancellation Clause: Make sure your purchased service contracts have no-fault cancellation clauses, so you can cancel a PSC at any time for any reason. This can save you thousands of dollars if a better opportunity comes your way or you have service quality issues that can’t be resolved amenably.

6. Performance Expectations: Don’t expect good performance, mandate it in your statement of work. For example, use terms such as “contractor shall provide 24-hour emergency service at no extra cost.” Don’t leave any performance expectations to your contractor’s discretion or you could be disappointed.

7. Insurance Coverage: Make sure that your contractor has adequate insurance coverage for the services being provided. If done properly, you can shift some or all of your insurance risk and cost to your contractor.

8. Financial Incentives: There should always be financial incentives built into your purchased service contracts to encourage your contractor’s continuous improvement, like a cost savings bonus per annum based on predetermined parameters.

9. Quantitative/Qualitative Benchmarks: What is measured happens! Therefore, you need to establish in your PSCs multiple quantitative/qualitative benchmarks to compare your contract’s attributes, practices, or performance to our industry’s minimum acceptable standards. For instance, inventory days on hand are 83 days at your facility vs. 30 days industry average. This statistic then gives you a basis for discussion with your contractor for improvement.

Based on our experience, your contractors will be more amenable to negotiate the terms and conditions of your purchased service contracts than their price, fees, or rates. That’s why it’s important to spend the time customizing your PSCs’ terms and conditions so you can squeeze as much money as possible out of the core deliverables in your contract.

P.S. If you would like more articles like this, go to  www.PurchasedServicesMagazine.com.

Below are some similar articles that you may find interesting.

5 Emerging Purchased Services Best Practices You Need to Know About

5 Key Elements to Improve Your Hospital’s Performance-Based Purchased Service Contracts

Integrating CSUM Into Your Healthcare Value Analysis Program

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