How Contract Management Improves Healthcare 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. Data about relationships, services, patients, and providers must also be securely stored. 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, data security, 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. Contract management for healthcare is the same process, but specifically with regard to the healthcare industry.
Contract management can be broken down into several distinct contract lifecycle stages, and it covers various steps and situations. The main purpose of contract management is to guarantee that contract workflows are set up so that contracts can efficiently make their way through the entire contract workflow in a timely and cost-effective manner. To fine-tune contract lifecycle management (CLM) processes, data should be recorded and analyzed.
Here’s an example of healthcare 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 Is Healthcare Contract Management?
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.
Healthcare contract management still involves guiding contracts through each contract lifecycle management stage, from early moments like request and drafting to later milestones like reporting, analyzing data, accounting, 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 Healthcare Contract Management?
At first glance, it might seem that healthcare 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.
The goal of a risk analysis in contract management for healthcare is to review available data, demonstrate consideration of potential risks, and determine how critical they can be. This involves identifying a possible risk, gathering related data, defining its level, and determining how critical it is for an organization.
Not all healthcare organizations and other 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.
Including risk analysis in the contract lifecycle 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.
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 collecting data and 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, saving data for further analysis, and monitoring costs on a regular basis. In simpler terms, it provides answers to accounting questions.
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. Additionally, each of these variations will need its data monitored.
The primary purpose of featuring reports in the contract lifecycle is to deliver an overview of general performance, as well as ensure contract performance is in line with pre-determined measures and key data. This might entail dividing reports for strategic or high-risk contracts into two parts: service-level agreement requirements and key performance indicators.
The performance standards and tracked data should strive to regulate supplier behavior, and they should strike a balance between supporting performance management and cost management. Ultimately, standards must be clearly understood by all parties, and the data must be objectively measurable so that they can be reflected in reports.
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?
Starting from the moment a request is made, all contracts proceed through a full lifecycle of seven clear, distinct CLM stages that conclude once the contract is either renewed or terminated. Some companies and healthcare organizations might add a few extra CLM 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 healthcare contract management:
- 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)? Does the contract need a digital and/or physical copy?
- 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, obligations, and services 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 activities? 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 healthcare contracts?
For a closer look at each stage, visit our blog on the 7 essential stages of contract management.
What Is Contract Management Software?
Contract management software is a specialized type of software that enables users to speed up their contract lifecycle. By moving all contracting stages to a digital format, users can complete paperwork quicker, easier, and at a much lower cost. Furthermore, such software helps ensure that users access only the latest version of documents, which is critical for an industry that’s heavily regulated.
With the help of contract management software, users can read, review, and approve contracts simultaneously. Some CLM systems can also help automate certain tasks, such as automatically filling out patient information and other data fields. Many even provide unlimited documents or users (useful for high-volume paperwork or large organizations with lots of employees), as well as digital signature features that can speed up the provision of services by allowing surrogates to make medical decisions and sign urgent documents without having to race to the hospital in time.
Such contract management software features can enable healthcare providers to deliver medical support in a timely manner. And in medicine, the more time available for medical service, the more likely the service can succeed.
Currently, many organizations still conduct their contracting and documentation processes manually. However, companies that have adopted a digital CLM system have come to realize CLM software is almost as essential to contracting as Microsoft Word is to writing. (By the way, several digital CLM systems even offer document drafting and redlining features.)
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 increased compliance, contract management software for healthcare can save organizations thousands of dollars per year while helping initiate data-driven decisions.
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 lifecycle 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 lifecycle management software helps healthcare companies remain compliant, leverage data for decision-making, and avoid costly penalties.
Visibility into Healthcare Contracts
It’s impossible to service healthcare contracts and their contents if you don’t know where your contracts live, or where they’re at in their contract lifecycle. 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 contract insights and key performance data regarding your healthcare contracts, and your contract management software doesn’t provide them, you won’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 lifecycle management software offers a secure location to store all of your contracts, including physician contracts, vendor contracts, building leases, and more. Thanks to contract management software, your legal team and key stakeholders can 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 healthcare contract management processes. That’s how contract management software can save the day.
Custom Alerts and Notifications
Healthcare companies clearly need to manage their contracts 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 Healthcare Contracts 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 CLM features, processes, 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 software have a simple, straightforward way of attaching these documents to physician agreements and demonstrating compliance with healthcare laws.
Once you’ve organized all of your contracts in your healthcare 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 in your contracts and demonstrate that your healthcare company has systems in place to address industry regulations.
Risks involved: Failing to take a proactive approach to 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 CLM software also makes it easier to create new reports to satisfy specific requests should they come up.
Operating in one of the most heavily regulated industries, healthcare companies have a significant need for strong contract management processes and features to support your efforts. Implementing healthcare 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. A good contract management software will allow you to avoid incurring penalties for violating these regulations, which are severe (including both civil and criminal penalties). Purchasing contract management software to support the tracking of key components of your agreements is typically well worth the up-front investment.