The exception to procurement transparency: PPI

Increasingly, such "due diligence" practices, and the resulting transparency of information, are in the crosshairs of suppliers in a major area of hospital procurement: PPI. Most hospitals use the vendor’s contract rather than the standard hospital contract language. Upon close inspection, the language in the vendor contract may put the hospital and its established PPI procurement practices at odds with its PPI vendors.

Can this happen to you? Perhaps it already has. A simple exercise of reviewing your own total joint implants, cardiac rhythm management devices or spine hardware contracts may reveal some alarming restrictions.

Pull out your contracts now, and scan down to the section referring to Confidentiality. These clauses tend to include a broad range of restrictions. They are often written by the seller so as to leave you – the purchaser – unclear as to allowable uses of some or all of the information (pricing, terms, rebates, volume commitments) contained in the document.

It is easy to overlook this type of language when signing a contract. As soon as the often-difficult pricing negotiation is done, many materials managers are pressed to move on to the next task. They may not pay too much attention to the "fine print." Frequently, materials managers and the hospital legal department are not in synch on the steps needed for thorough and timely contract review. The materials manager, fearful that a contract will be slowed down by "legal," will go ahead and sign it to expedite implementation of the new pricing.

The downside of unclear language

The challenge is to look carefully at the confidentiality "legalese," then consider the real-life limitations the language may place on you.

For example, terms like "third party" and "confidential information" are frequently used but often not well defined. When the language is broad and open to interpretation, the hospital may be at risk. A vendor might contend that its contract does not give the hospital permission to use contract information in ways the hospital has historically used this information to manage its business.

In other words, the practice of a hospital that has historically shared pricing or other contract information with physicians, business consultants, group purchasing organizations, online benchmarking services, auditors or payers could be called into question. Clearly, materials management needs to protect the hospital’s latitude to manage procurement practices in ways that work for the hospital. If benchmarking, discussing service line costs with physicians, or talking to your colleagues across the country, have been effective tools for you in the past, think long and hard before you give up these tools of your trade.

Finally, imagine the U.S. health care system (you and all of your colleagues) no longer having vendors’ permission to continue doing what is needed to ensure good stewardship of hospital finances. If there is no longer a role for a manager to analyze the market and negotiate competitively on the basis of transparent information, then procurement becomes merely a clerical function of paying invoices.

Confidentiality clauses:
what you can do

A small number of hospitals have implemented a standard contract template that is hospital-focused rather than vendor-focused. This treats all suppliers equally by giving them the same Terms and Conditions. It also minimizes the difficulty of compliance with what could realistically be dozens of differing contract requirements from multiple PPI vendors. In the most progressive situations, the PPI contract is literally written on the hospital’s letterhead, for the vendor to sign. The PPI vendor’s specific pricing and service terms are an attachment to the "generic" hospital document.

That is the exception, not the rule. But whether your PPI contracts take the hospital’s or the vendor’s form may be less important than including contract terms that protect the hospital’s procurement methods. As the most knowledgeable individual regarding "what works", the materials manager needs to take the lead in educating administration and the Legal Department on the importance of this issue.