By Manpreet Kaur Sandhu, Senior Manager, Industry Affairs; Health Industry Distributors Association
June 2023 – The Journal of Healthcare Contracting
The speed of contracts and transactions is getting faster and faster. Nevertheless, providing your trading partners with 45 days’ notice about eligibility changes or tier approvals still makes good business sense. It is important for all parties to have an opportunity to load the correct contract and pricing. This reduces any rework of chargebacks/rebates when there is pricing misalignment after the transaction has occurred.
In the healthcare industry, the contract timing process involves several industry partners, including GPOs, manufacturers, distributors, and healthcare providers. Each partner plays a critical role in the negotiation, communication, and implementation of contracts, and faces unique challenges throughout the process. It’s important to recognize all industry partners involved in the contract timing process and their challenges:
- Group Purchasing Organizations(GPOs) are responsible for negotiating contracts with suppliers on behalf of their members and achieving cost savings. They need to make these contracts available on a timely basis to manufacturers, who must notify distributors of the terms and pricing. GPOs may require up to 45 additional days to review contracts, determine tiers, and gain approvals for new and extended member contracts.
- Manufacturers negotiate contracts with GPOs and are responsible for communicating the contract terms and tier eligibility to providers. This communication should include the availability and pricing details of the negotiated contract to distributors at least 45 days prior to a contract effective date. Manufacturers also need to report sales data to GPOs each month, which is dependent on distributors reporting this data in a timely manner.
- Distributors are central to all information shared between GPOs, manufacturers, and providers. They need to receive and understand the availability and pricing details of negotiated contracts at least 45 days before a contract effective date. They are often contractually required to inform providers of tier eligibility and communicate correct contract prices at least 30 days before the effective date. Distributors are responsible for loading and activating the pricing received from manufacturers and correcting inaccuracies.
- Providers purchase manufacturers’ products on contract negotiated by their GPO, manufacturer, and/or distributor. Providers must follow their GPO and/or supplier-negotiated LOC processes to ensure their distributor is using the correct contract price based upon the tier to which the provider is eligible for GPO agreements. This adherence also ensures provider locations are properly listed in a GPO’s roster and included on LOCs to provide access to pricing. Providers may also negotiate pricing directly with manufacturers, but they still need to follow the above process.
Adhering to a common industry standard for contract notification and activation timing ensures that once the pricing becomes effective, each partner has the same information in their systems. The result is that invoices and payments flow smoothly and automatically, eliminating the staff time and cost require to fix pricing mismatches.
It is tempting to want to speed up the process, especially if you’re a provider eager to access attractive pricing. But in the long run, standards increase pricing accuracy and reduce process costs for all trading partners.
The contract notification standard is included in the HIDA white paper Improving Pricing Accuracy: Contract Communications Standards For The Healthcare Supply Chain; available as a free download at hida.org.