Paradigm Shift: Holding Your Vendors Accountable for Their Product, Service, or Technology Outcomes

The Healthcare Financial Management Association (HFMA) tells us that your free-standing or multi-hospital payment systems are evolving from pay-for-performance to value-based purchasing, readmission restrictions, and bundled payments. This prediction should also mean a paradigm shift for your supply chain expense management.

Little or No Accountability for Your Vendors' Promises and Guarantees

When was the last time you checked to see if the savings improvement that was promised by a vendor occurred? Not often enough, according to our own extensive multi-year research. Almost on a daily basis, our Validation Management software uncovers that a savings that was promised by a vendor and then reported to a hospital, system, or IDN’s senior management either didn’t happen or actually increased a hospital, system, or IDN’s supply expenses.

Promises Are No Longer Good Enough

It is rare that a vendor takes responsibility for missing a savings or quality target they have estimated in their proposals because they aren’t held accountable by anybody to do so. However, more and more of your hospital, system, or IDN’s contracts with third parties will be “at risk” agreements. Meaning, if your healthcare organization misses their financial and quality targets in these contracts they will be held accountable and could lose money on these deals. Isn’t it time we, too, hold our vendors to these same standards?

Creating a Structure of Accountability

The first order of business in creating a structure of accountability is to know your reimbursement formulas from your third-parties’ agreements for your cases, procedures, and tests. This way, you can determine if your vendors are in the ball park with their offers.

Next, memorialize your suppliers’ offers, promises, and guarantees into your vendor agreements. For instance, if a healthcare supply vendor is guaranteeing a savings of $22,000 within three months in their proposal, show it as a guarantee and list the penalty (e.g., credit for $22,000 within 45 days if they miss the target) for missing their promised savings goal.

Finally, track, trend, and analyze the utilization (in-use cost, not price) of the hospital product, service, or technology, at least quarterly, under your new contract to determine if the supplier has met their guarantee. Without this last step, you have no basis for holding your vendors accountable for their offers, promises, and guarantees. This is the paradigm shift that is mission critical for your healthcare organization. Don’t delay in making this cultural change happen!


Robert T. Yokl is President and Chief Value Strategist of Strategic Value Analysis in Healthcare (SVAH Solutions), which is a leading healthcare firm providing Supply Utilization Analytics. Yokl has 38 years of experience as a healthcare supply chain manager and consultant, and is the co-creator of the Utilizer® Dashboard that extends beyond spend management for deeper and broader supply utilization savings. Visit us at

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