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The Importance of Contract Management for Healthcare Compliance

Risk & Compliance

As every healthcare company knows, the repercussions of not remaining compliant with industry regulations are severe. In August of 2018, William Beaumont Hospital, a regional hospital system based in the Detroit, Michigan area, paid $84.5 million to settle alleged violations of the Stark Law (also known as the Physician Self-Referral Law) and Anti-Kickback Statute in connection with “sweetheart deals” benefitting referring physicians.

According to the United States Department of Justice, “...Beaumont provided compensation substantially in excess of fair market value and free or below-fair market value office space and employees to certain physicians to secure their referrals of patients in violation of the Anti-Kickback Statute and the Stark Law, and then submitted claims for services provided to these illegally referred patients, in violation of the False Claims Act.” 

Regardless of how good or bad a law is, the fact remains that the healthcare system is governed by countless regulations at a national, state or regional, and local level. In the United States alone, healthcare providers have to take into account laws regarding Medicare, Medicaid, CHIP, and ACA, to name a few. 

Then there are numerous relationships with organizations like pharmaceutical companies, medical technology suppliers, research laboratories, insurance providers, and more. It’s no exaggeration to claim that the healthcare system is built on a very elaborate foundation of contracts and other legal agreements, such as DPAs, NDAs, DNRs, and insurance agreements.

Ultimately, quality contract management and regulatory compliance are at a premium in the healthcare industry. Failure to comply with regulations could, as was the case with William Beaumont Hospital, expose an organization to a massive financial and reputational loss.

What Are Examples of Contract Management? 

Contract management is the process of managing contracts from creation through execution to termination. It can be broken down into several distinct stages, and it covers various steps and situations. The main purpose of contract management is to guarantee that workflows are set up so that contracts can efficiently make their way through the entire workflow in a timely and cost-effective manner.

Here’s an example of contract management in action: A hospital enters into an agreement with a supplier of medical gloves. On the first business day of each month, the supplier should deliver 1,000 sets of medical gloves. For the first few months, everything proceeded normally, but for the last four months, the supplier delivered the sets of gloves 3–4 business days late. 

A contract manager would check the contract to confirm that the supplier was in breach of contract, then depending on the consequences outlined in the contract, the manager would approach the supplier with various options. This could include the termination of the contract for non-compliance, potential discounts, or some other term that both parties could agree to. It can also include the possibility of the supplier explaining the reason for the breach, and the addition of a grace period in the event of unforeseen circumstances.

What Does Contract Management Do in Healthcare? 

Contract management in healthcare is more or less the same as contract management in any other industry, such as finance or technology. The biggest difference is simply the context in which contracts are managed, which is healthcare in this case.

Contract management in healthcare still involves guiding contracts through each stage of the contract lifecycle, from early moments like request and drafting to later milestones like reporting and renewal/termination.

However, healthcare contract management requires certain specifics to be fulfilled, such as governance of HIPAA business associate agreements, Protected Health Information (PHI), and other healthcare documentation. Healthcare contract management must also be prepared to coordinate various stakeholders including (but not limited to) healthcare providers, managed care organizations, patients, insurance providers, employees, and vendors.

A good healthcare contract management solution will be able to not only improve efficiency and limit risk, but it will solve storage and communication issues in a manner that doesn’t jeopardize patient data security. Consequently, a high-performing contract management platform can lead to better care and lower operating costs.

What Are the Four Components of Contract Management?

At first glance, it might seem that contract management is made up of many moving parts and gears. While there is a bit of truth to it, all elements of contract management can be categorized into four separate components: risk analysis, commercial, suppliers and contract, and reporting.

Risk analysis

The goal of a risk analysis in contract management is to demonstrate consideration of potential risks and how critical they can be. This involves identifying a possible risk, defining its level, and determining how critical it is for an organization. 

Not all organizations and industries incur the same risks. For example, a hospital in Seattle won’t have to ensure compliance with GDPR requirements for the same reason that an IT company in Europe won’t need to guarantee they’ve checked a person’s Medicaid eligibility.

Analyzing risk simply allows organizations to take steps in advance to make sure they aren’t blindsided by situations. It might be a lot of legwork, but the benefits far outweigh the costs.

Commercial

The commercial component accounts for the financial aspects of a contract. This includes checking for insurance needs, conducting pricing reviews, tracking qualitative and quantitative benefits, and forecasting financial risks.

For instance, benefits tracking would involve the use of a methodology for reporting all benefits associated with the contract. This might be logging changes in prices, transaction costs, and response times or monitoring non-financial KPIs. 

And when it comes to the financial management aspect, it would mean ensuring payments are made on time and in full, processing invoices in compliance with requirements, and monitoring costs on a regular basis.

Suppliers and contract

Considering that contracts effectively legalize a relationship between a supplier and a buyer, clear lines of communication and explicitly defined responsibilities must be outlined. This is achieved within the context of this component.

The suppliers and contract component also oversees any variations that are made to agreements. Variations are amendments that both parties agree to make, and they can occur for a wide variety of reasons: changes in technology, organizational needs, marketing conditions, etc. 

For instance, when Croatia recently switched from its original kuna national currency to the euro, many companies that had contracts denominated in the kuna would have had to approve amendments that redenominated the contract in euros. 

Other standard financial variations are changes to billing processes, delivery addresses, assigned personnel, and quantity or nature of deliverables.

Reporting

The primary purpose of reporting is to ensure contract performance is being managed in accordance with pre-determined measures. For strategic or high-risk contracts, this might require them to be divided into two parts: service-level agreements and key performance indicators.

The performance measures adopted should strive to regulate supplier behavior, and they should strike a balance between supporting performance management and cost management. Ultimately, measures must be clearly understood by all parties, and they must be objectively measurable.

Once a contract’s performance has been assessed, the results need to be reported. The frequency itself is often stipulated in the contract (ex. monthly, quarterly, annually).

What Are the Seven Stages of Contract Management?

What Are the Seven Stages of Contract Management?

Starting from the moment a request is made, all contracts proceed through a full lifecycle of seven clear, distinct stages that conclude once the contract is either renewed or terminated. Some companies and organizations might add a few extra stages depending on their corporate policies, but generally speaking, most contract lifecycles comprise seven.

In a nutshell, here are the 7 essential stages of the contract lifecycle:

  • Planning: Who is responsible for each stage of the contract’s lifecycle, and what problems have arisen in the past (and how can they be solved)?
  • Implementation: Do you have a plan for how to implement the contract and onboard individuals when needed?
  • Pre-contract: Does a template already exist for the intended contract? Does a contract need to be created from scratch? What clauses and obligations should be included?
  • Handover: What should stakeholders know about the contract?
  • Contract: What must be done to ensure the contract performs as intended?
  • Pre-renewal: Should an agreement be renewed, renegotiated, or terminated? Are there any penalties incurred for certain actions? How well has the contract performed?
  • Post-contract: What final steps must be taken once a contract has been terminated? Are there any outstanding balances that need to be paid? Should a post-mortem be conducted in order to gather insights for future contracts?

For a closer look at each stage, visit our blog on the 7 essential stages of contract management

How Can Contract Management Software Help?

Implementing contract management software is one step healthcare companies can take to improve their compliance procedures and ensure they’re satisfying industry regulations. In addition to improved compliance, contract management software can save healthcare organizations thousands of dollars per year.

For instance, a typical high-volume, low-value legal document like a medical NDA can cost anywhere from $200 to $450, depending on the location, language, and other determining factors. Considering that the average hospital in the US saw 2,500 patients, if each one signed an NDA, the annual costs of completing NDAs could range anywhere from $500K to $1.125M.

In comparison, a simple contract management solution like ContractWorks costs from $8,400 per year, saving well over 90% in spend for the same number of documents. 

Below are some ways that contract management software helps healthcare companies remain compliant and avoid costly penalties.

Visibility into Your Agreements

It’s impossible to keep track of contracts and their contents if you don’t know where your contracts live. When contracts are spread across multiple offices, shared drives, computer desktops, and email inboxes, it’s challenging to locate an agreement, let alone a specific clause or term found within one. 

Risks involved: When you don’t have insight into your contracts, you don’t have the relevant background information to take the actions needed to remain compliant with industry regulations. Under regulations like Stark Law and the Anti-Kickback Statute, you must keep a close eye on things like physician agreements and office leases. If you lose sight of where these stand, you risk facing steep financial penalties, in addition to potential losses stemming from poor contracts that should have been renegotiated.

Solution: Contract management software offers a secure location to store all of your agreements, including physician contracts, vendor agreements, building leases, and more. This allows your legal team and key stakeholders the ability to quickly and easily locate any contract on file, and search within the contract to find a term or keyword of interest. With strict healthcare compliance regulations in place and severe penalties for violating those regulations, companies cannot afford to operate with weak contract management processes.

Custom Alerts and Notifications

Healthcare companies clearly need to manage their agreements closely and are forced to pay a hefty price when any details are missed. If some element of a physician agreement needs to be renegotiated for a company to remain compliant - but the contract automatically renews because of a missed deadline - the company is subjected to unnecessary risks and potential fines.

Risks involved: Missing contract deadlines clearly presents significant risks for your business. Missing a deadline to cancel an agreement before it automatically renews could lead to throwing away money on expensive equipment or services that are no longer needed. In terms of healthcare compliance, if you have a physician agreement that needs to be restructured to comply with Stark Law and you miss that renegotiation window, your company is exposed to additional risk. Making sure every contract deadline is on your radar is critical, whether or not action is needed.  

Solution: Setting up alerts and notifications for contract deadlines is a simple way to stay ahead of critical contract management tasks. Knowing exactly when your agreements expire, and having enough time to renegotiate terms within the timeframe allowed, presents an easy way of reducing risk.

Supporting Document Storage

Under regulations like Stark Law and the Anti-Kickback Statute, healthcare companies need to track physician contracts and their outside valuation in order to justify fair market compensation rates and fair market lease rates. To ensure you’re out in front of this, keeping supporting documents on file that demonstrate fair market rates is critical. 

Risks involved: Having easy access to documents that demonstrate compliance with regulations helps protect your business from potential penalties, so not being able to quickly pull up those documents can create holes in your case. Not having the adequate tools and systems in place upfront to keep you organized can lead to fire drills and hours of extra time spent trying to reconcile your files during an audit or compliance exam.

Solution: Companies that use contract management software have a simple, straightforward way of attaching these documents to physician agreements and demonstrating compliance with healthcare laws. 

Comprehensive Reporting 

Once you’ve organized all of your contracts in your contract management repository and set up alerts to stay informed of important deadlines, the next step is to report on your key metrics. Working with your risk and compliance department to establish what data to report on and how often to run the reports will improve transparency into your contracts and demonstrate that your healthcare company has systems in place to address industry regulations.

Risks involved: Failing to take a proactive approach with reporting can lead to a number of issues with both your internal compliance team and industry regulators. Agencies responsible for monitoring compliance with industry laws want to see that you’re taking the appropriate measures to remain compliant, and not having adequate systems and processes in place can create red flags.

Solution: Contract management software offers customizable reporting options so you can schedule reports that track any number of data points within your contracts. This not only shows your internal compliance department and industry regulators that your company knows what’s in your contracts and has a system in place for monitoring them, but having familiarity with the software also makes it easier to create new reports to satisfy specific requests should they come up.

Conclusion

Operating in one of the most heavily regulated industries, healthcare companies have a significant need for strong contract management processes and tools to support your efforts. Implementing contract management software is an important step to take as you look to mitigate risks and remain compliant with Stark Law, the Anti-Kickback Statute, and other healthcare regulations. The penalties for violating these regulations are severe (including both civil and criminal penalties), so purchasing contract management software to help track key components of your agreements is typically well worth the up-front investment.

The Buyer's Guide to Contract Management Software

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