The healthcare sector consists of a multitude of different businesses – from medical services, manufacturers of medical equipment, drug makers, companies who provide medical insurance as well as all other companies that facilitate the provision of healthcare to patients. They tend to be grouped into either 4 or 6 categories with the latter, more exhaustive list including pharmaceuticals, life sciences biotechnology, equipment, distribution, facilities, and managed healthcare. As you might imagine, the list of companies that participate in these categories is not only endless but increasingly growing. It includes for-profit businesses, nonprofit companies, and not-for-profit organizations.
- Challenge: Two dollars goes to the person who can explain the difference between nonprofit and not-for-profit
- Clue: The healthcare sector contains both
- Sidebar: One must keep a sense of humor about herself when writing blogs
Incidentally, we at Contracts 365, are happy to list several nonprofit healthcare organizations among our esteemed list of healthcare contract management software clients including Oncology Nursing Society, Van Andel Research Institute, and Willis Knighton Health System.
On a more focused note, according to Investopedia, the healthcare sector is one of the largest and most complex sectors of the US economy, and accounts for almost a fifth of our overall GDP. With the increases in the aging population within the United States as well as the introduction of the Affordable Care Act, it is experiencing unprecedented growth. And, with this growth, the healthcare industry is becoming subject to increased regulation and oversight.
“What does this have to do with contract management?”, you ask.
“More than you would ever think. Allow me to explain.”
At the heart of every transaction is a contract. As we all know, a contract is an agreement between two parties that creates mutual legal obligations. It can be oral or written, though the former is harder to enforce and increasingly less frequent. Generally speaking, contracts govern the exchange of goods and services. In the healthcare sector, the most common contract types include employment contracts, managed services agreements, transfer agreements, licensing agreements, and services agreements. There are multitudes of additional contract types which fall into these general categories, though those examples provide a good sense.
As the healthcare sector grows, so, too, does the volume and complexity of its contracts. With the increased volume and complexity is also the introduction of more intense contract negotiations, and heightened requirements for contract management and more importantly, a robust contract management software to handle the complexity of the healthcare industry.
Increased Volume + Increased Complexity = Increased Resource Requirements + the Need for Contract Management Automation
More contracts require more resources to create and negotiate the increasing volume of contracts. Depending on the specific section of the sector and its associated maturity, this growth may result in more complex contracts that undergo higher levels of negotiation and scrutiny. The specific terms and conditions may need to be tracked as does the status of the contract both in the negotiation and signature process. As important, if not more important, more contracts result in more resources necessary to manage the deliverables and obligations of the contract once signed. Signing a contract and putting it in a drawer does nothing for either party, especially when the contract invariably includes a variety of crucial deliverables and contract obligations.
As the complexity and regulation associated with contracts increase so do the risks for noncompliance. Risks associated with noncompliance present themselves in a variety of different forms from criminal and civil penalties to regulatory fines and contract damages.
Increased Complexity + Increased Regulation = Increased Risk + Increased Contract Management Requirements
With the growth in the healthcare sector, contract management activities in this sector are also seeing increased complexity with their contracts, increased regulation and oversight, and an increase in the obligations and deliverables associated with each contract. With each of these increases, so, too, does the risk of not complying with the terms and conditions of the agreement. For some sectors, these risks may simply result in a breach of contract or damaged vendor and customer relationships. In the healthcare sector, the magnitude of the risks is much greater as a variety of fines and penalties apply for noncompliance.
And, if these arguments are not convincing enough, the lost revenue potential alone associated with the mismanagement of contracts is worth considering. According to IACCM, the International Association of Commercial and Contract Managers, research supports good contract development and management can improve profitability to the tune of 9% of annual revenue. When applied to the healthcare sector, which was valued at $8,452 billion in 2018, the amount is staggering.
The Solution = Healthcare Contract Management Software
The contract management software market is one which includes a variety of different solutions from simple repository solutions where contracts are merely stored and searched to solutions which focus on and facilitate different aspects of the contract lifecycle such as electronic signature or reporting. The best contract management software provides support for the full lifecycle of the contract – from pre-execution and negotiation to post-signature contract management activities.
The pre-execution activities associated with a contract lifecycle application include contract creation, negotiation, and signature while the post-execution activities include storing the contract in a secure repository, searching and reporting on contract details, and management of contract obligations. The best contract management software solutions will also include other important functional contract management features such as task management, alerting and escalations, activity metrics, self-service status options, risk analysis, language management, and a variety of collaboration features.
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Contract Management Software for the Healthcare Sector
When considered in the context of the healthcare sector, robust contract management software supports many of the healthcare growth challenges discussed.
Contract Management Software Helps Healthcare Companies to Manage High Contract Volumes
As the number of contracts being created increases, the introduction of automation is typically employed to address these challenges. Companies will frequently introduce standard contracts which can be created by completing a form via a wizard-based experience. Frequently referred to as contract templates, their introduction is an important first step for many organizations in their contract management journey. The use of a contract template, alone, does not provide the many benefits that can be realized through the use of a contract management software application. As noted in our prior blog, The Benefits of Managing your Contract Templates in a Contract Management System, managing your templates in a contract management software solution allows an organization to not only create contracts quicker with standard language provisions, but to also benefit from numerous other efficiencies. By managing templates in a contract management solution, organizations empower their contract managers and business users to track the status of the contract, directly, to manage contract activities with tasks, alerts and escalations, and to readily sign and store the contract in a centralized repository. The best contract management software solutions will also provide for visual status tracking, predictive tasks, and metrics on the amount of time it takes to complete certain activities.
Contract Lifecycle Management Software Readily Addresses the Increased Complexity Present in Healthcare Contracts
As the healthcare sector matures so does the complexity of its contracts. In some cases, contract negotiations will also become more intense. A contract lifecycle management software solution addresses the increased complexity through the use of standard contract templates and clauses as well as clause playbooks which provide contract managers with the ability to readily include alternative, already approved language provisions. If higher risk language is suggested, contract management software solutions can escalate this language for approval, and record these clauses for ongoing management and risk mitigation. For increased contract negotiations, many contract management solutions will include redline functionality, automatic check in and check out of documents, and version control.
The Best Contract Management Software Solutions Support Healthcare Companies with the Management of Their Contract Obligations
Contract obligations include all of the obligations and deliverables associated with a contract. For purposes of contract management software, notice periods present within contracts are managed much like an obligation or task. For complex contracts or contracts which span long periods, the ability to manage these deliverables and notice periods through automation becomes critical. Contract management software solutions support the management of these deliverables by allowing contract managers and those associated with the management of the contract to manually or automatically create obligations, assign these to the appropriate resources with due dates, track their progression, and create escalation avenues when they are missed. The best contract management software allows for creating a series of contract obligations that can be updated automatically based on the outcome of prior obligations.
Contract Management Software Mitigates Risk and Ensures Compliance with Healthcare Regulations and Reporting
As we all know, having easy access to information is key to properly managing your contracts and the content within them. By leveraging contract lifecycle management software, companies can catalog an endless amount of information about a contract and report on this information. From renewal $$ to limitation of liability amounts to high-risk contract language, reports can be produced with the click of a button. These reports can be ad hoc or scheduled and can be set to automatically distribute to key resources within the organization on an ongoing basis. These reports also serve as the foundation for a variety of different dashboards which can be created and presented within advanced contract management software. Access to these reports and dashboards is critical in the growing, complex healthcare sector.
In addition to providing support for the creation and management of large volumes of contracts, helping to address the complexity in such contracts, providing automated solutions for the management of obligations, mitigating risk, and ensuring compliance through reporting, contract management software delivers numerous benefits to the organizations that embrace such technology.
As the health sector continues to grow in both volume and complexity, the need for contract management software also grows. Our Contracts 365 Healthcare Contract Management Software readily addresses the complexity of the healthcare sector while providing its customers with the benefits associated with the Microsoft Cloud. If you’d like to learn more about our Contract Management Software built for healthcare organizations that use Microsoft 365, please don’t hesitate to reach out to us or even better, request a demo and we can show you how it works in real-time.