News on the Cover

Inking the ultimate RFP
To overcome legalese hurdles, simply be realistic and
expose the fine print

by Rick Dana Barlow

Just how easy is it to shortchange a hospital’s request-for-proposal (RFP) process? Very. And that decision most likely will culminate in a gigantic financial mistake, potentially locking a facility into an undesirable professional relationship with the wrong vendor.

Unfortunately, too many facilities give the RFP short shrift in the overall process. They either cobble something together haphazardly and quickly from online research and message board tips, borrow a template from their group purchasing organization, buy one from a consultant or vendor, or merely rely on something outdated their organizations have used for many years. Certainly, qualified consultants, GPOs and vendors understand the subtle nuances of the RFP process and their boilerplate solutions just may cover most, if not virtually all bases. The real challenge stems from naively customizing an RFP based on a patchwork quilt of sources.

Some facilities may ask too many "yes or no" questions that generate near-meaningless information, preventing them from drawing educated conclusions. Or they may ask too many fishing expedition questions that call for overly detailed responses that discourage vendor participation. Some may customize their templates too little and miss the insights they need to make the proper decision for their facilities; others may customize their templates too much, piecing together and tweaking specification requests on a decentralized basis from a variety of department heads.

All told, the RFP should be serious business for the supply chain management professional. It’s the document (electronic or paper) that will help determine which vendor and product to choose for optimal results.

So how do you reach that point where the customized RFP you developed will provide answers to most, if not all, the questions you need to make the right decision?

Healthcare Purchasing News queried a number of supply chain management professionals for their top-notch tips to help formulate the ultimate RFP they wished they knew from the start.

Michael Neely, vice president, supply chain services, Perimeter Solutions Group LLC, Buford, GA, and a former hospital materials management director, simply advised being realistic and reasonable. "First, always start with a realistic view of what you expect to accomplish by issuing the RFP based on what your needs are, not just a laundry list of questions," he said. "Second, make sure you have an understanding of how reasonable your request is in terms of the suppliers’ ability to respond to the terms of the RFP."

Bag the gag orders

Hospitals shouldn’t overlook the value that RFPs bring to the procurement process, according to Eileen McGinnity, president, Aspen Healthcare Metrics.

"The RFP document is an opportunity for the hospital to define the playing field for medical device and implant vendors in the various clinical service lines (orthopedic, heart valves, spine implants, etc.)," she said. "In addition to providing bid price guidance, the RFP gives the hospital the forum to codify certain terms and conditions the vendor must meet in order to reach an agreement. This especially applies to contract terms governing confidentiality and new technology.

"Increasingly, hospitals are finding it an administrative nightmare to manage literally dozens of confidentiality clauses from vendors," she added, "each proposing its own special flavor of confidentiality."

That’s why hospitals should "develop their own standard clause and, starting with the RFP, advise vendors that the hospital’s language will govern all negotiations and the final agreement," she said. "The same applies to how new technology will be introduced into the clinical program, and how pricing for it will be negotiated. By making these expectations clear from the start of the negotiating process, the hospital can minimize delays and disruptions later on."

In fact, non-disclosure agreements or pricing confidentiality clauses, particularly among high-dollar physician preference item vendors, remain a hot topic with supply chain managers that can and should be addressed in the RFP.

"I have always had a problem in signing a non-disclosure statement," said Bob Majors, director of materials management, Bloomington (IN) Hospital & Health System. "I would now resist more vehemently on the basis of the goal of the government to make healthcare costs more transparent. This goal is stated in the April 29 AHA document [that states] ‘Share meaningful information with consumers about the price of their hospital care.’  Non - disclosure statements would make this impossible.

"Another thought being conveyed to several GPO memberships is that we should retain the right to share pricing information with anyone with whom we have a formal relationship. This would include other hospi tals within the system, physicians, GPOs, consultants, advisors, alliances and any other third-party entities," he continued. "For these reasons, I believe we have substantial reasons and support for not signing non-disclosure statements. On the downside, I would suspect that vendors could fight this by not giving the lower pricing to those hospitals that do not ‘cooperate’ with non-disclosure. But in the long run this strategy would fail."

John Siedlinski, president & CEO, Materials Management Consultants Inc., Naperville, IL, voiced clear objections to these documents. A former hospital materials management director, Siedlinski now does the same thing as an independent contractor for hire. 

Trim the evergreens 

"It is still amazing to me the number of vendors that still attempt to include automatic extension clauses in their agreements," Majors said. "These are a no-no and should be stricken from the document. A customer’s request for evergreen clause rejection will always be accepted, but if not requested, they will hold you to the document’s terms."

John Mateka, MBA, FAHRMM, executive director, supply chain operations, Greenville (SC) Health System, agreed. "While many healthcare procurement professionals and legal council automatically remove these clauses from most contracts it is surprising to know that many contracts are entered into with these clauses in effect," he said. "Essentially, these renewal clauses call for an automatic renewal of the contract/agreement whereby the contract terms are continued committing an organization to another contract period as much as five years and sometimes longer. Furthermore, many of the clauses mandate a written notice in order for the renewal not to take effect. This notification requirement can be anywhere from one year to 90 days whereby a written notice is required outlining your intent to end the contract/agreement."

Mateka advised that automatic renewals should be removed from all contract language. Furthermore, it’s important to define the time frame desired for the contract and include that as part of the RFP and the contract itself, he noted. If, however, a facility favors an automatic renewal option then the facility must define the specific renewal parameters or negotiate them as part of the final agreement, according to Mateka.

Without the automatic renewal in place the hospital should realize that the contract will end at the conclusion of the contractual period so it’s important to establish a process that alerts the appropriate people in time to renew or implement a new RFP process, he said.

Control the RFP process

In all of the major contracts in which Siedlinski has participated, either by specifying vendors via RFP or negotiating the actual agreement he always attaches a "standard template of terms and conditions," which is hospital-centered and pre-approved by hospital administration and legal resources.

"The manufacturer does not like this addendum because it removes all control from them," he said.

Some of the sample clauses in this appendix cover the following:

1. Capital equipment proposals include separate, unbundled contracts for all associated consumables.

2. All costs incurred are detailed annually throughout the life of the agreement, which typically spans five years.

3. All rebates and other incentives that the manufacturer or supplier receives for the purchase are returned to the hospital.

4. Uptime and downtime guarantees and performance benchmarks, with penalties for non-conformance.

5. Most importantly – a 30-day out clause, with no penalties or remedy periods and without cause.

Siedlinski makes one exception to his fifth stipulation: An agreement with large start-up costs or resource allocations, such as a management agreement for housekeeping, laundry or dietary services, he said. "Contracts of this type are provided with a 90-day out clause in the appendix. All remaining terms and conditions are secondary to the out clause, in terms of importance and clinical or financial impact," he added.

Majors emphasized his own terms for the ultimate RFP.

Discounts on new products. "It is always a good idea to cover pricing on products that could (or will) be introduced to the marketplace during the term of the agreement by including a statement that any products added to the product line will be discounted minimally at the same schedule as those covered under the original document," he said.

Option to move to more beneficial pricing. "If you enter into an agreement with a vendor who does not have one with your GPO or other affiliation, put verbiage into the contract allowing you to move to any pricing for which you are eligible in the future," he advised. "This would be in the case of your current GPO making an award for the product during the term of your agreement or through a new affiliation that may commence during the agreement, such as joining an IDN, an additional GPO or a regionally negotiated agreement outside of either."

Year/quarter end deals solicitation. "You might find some success in the solicitation of responses to a request for special deals at the end of the year or quarter," he noted.
"Although usually solicited by the suppliers, I have had some success in being proactive with this approach, provided it offered three components: Significant enough savings to get my attention, enough time to review the
savings offered and emphasis to stock (asset) items so as not to distort hospital depart-ments’ supply budgets."

Credit for returns. "This is not my original idea, but one I recall being offered by a peer and outlined in a trade journal several years ago," Majors admitted. "Establish the terms for credit for returns, when the return is precipitated by the supplier’s mistake, to include additional credit equal to the same percentage as they would charge for the return of goods when the mistake or request is ours. In other words, if $1,000 worth of goods are shipped in error and returned, and the supplier’s restocking charge is 15 percent, the credit to the hospital should be $1,150. After all, the efforts we make in this partnership should be consistent and provide incentive for excellence – in both directions." 

Plymouth Meeting, PA-based ECRI generally concentrates its consulting expertise on the technology side of RFPs, but its advice can be applied universally, according to Robert Maliff, associate director of ECRI’s Health Systems Group.

Maliff offered the following words of wisdom to include in RFPs.

Demand line item pricing. "How else can you compare apples with apples?" he asked. "All too often, suppliers roll pricing into one lump sum, never enabling you to compare prices for hardware components, equipment from other OEMs, training costs, software costs, etc. Do not fall victim to the acronym and ‘initialism’ games that suppliers play when they try to distinguish their ‘unique’ device from their competitors’ ‘unique’ devices, when in the end they are the same things."

Define what you want uptime to be. "If you do not, you will be stuck with the worst possible option, all of it favoring the supplier," he said. "State when downtime begins and ends, based on your clinical operating needs. Define what percentage of subcomponents may be considered ‘down’ while the rest of the system is considered to be ‘up.’ Also demand penalties when monthly uptime rates are not met; never, ever agree to annual uptime calculation periods."

Don’t sweat the small stuff. "Nearly all suppliers can meet minimum operating requirements," he said. "Unless you’re a governmental agency requiring that all (or most) suppliers meet some least common denominator, don’t spend the bulk of time defining in the RFP what are common performance requirements to all suppliers. List the areas that are truly important, like how you expect the technology to solve a workflow problem and its integration requirements."

List the goals you want to achieve. "Is it increased throughput, better image quality? This is more important than the electrical characteristics," he advised. "Often by listing your goals, suppliers can present an innovative solution. Ask them to respond directly how their proposed solution meets and exceeds your enumerated goals."

No technology is an island. "Provide detailed specifications of what integration parameters must be met," he noted. "Just asking for DICOM compliance is not enough since every vendor meets at least one aspect of this multi-layered requirement. Is it service class user, provider or both for DICOM Modality Worklist? How about DICOM Performed Procedure Step, or the myriad other DICOM classifications? Same goes for IHE, HL7, and all the others."

Bob Simpson, CMRP, president & CEO, LeeSar Regional Service Center &
Cooperative Services of Florida, Fort Myers, FL, structures his organization’s RFPs to reflect and satisfy specific needs geared toward their corporate structure, he indicated.

Establish vendor qualifications and willingness to go direct. The supplier must be a manufacturer of the product sought and be willing to send all product directly to the hospitals using the organization’s regional service center, he noted.

Guarantee open access to future developments. "In the case of anything high tech we ask for access to their R&D to ensure we are staying on the cutting edge and we are getting the most state-of-the-art technology for our end users," Simpson told Healthcare Purchasing News. "We have had companies come in with their development people and review what they are developing over the next five years. This has been very well received by our end users."

Make the vendor liable for product dating. "We state that the manufacturer is responsible for any short-dated items that are shipped to us and we ask for two-year expiration dates as a minimum," he said.

Recruit the vendor for internal inventory management expertise. "On large multi items that we stock from one manufacturer we request that they work with us to manage that inventory to ensure we don’t have any items that are not moving," he noted. "If we find said items the manufacturer agrees to take these items back for full credit and replace them with product that we are using. An example of this is suture. Physicians and procedures change, and a suture we were using last year we may not be using this year."

Simpson also indicated that his organization has started to use the reverse auction process and are pleased with the early results.

Flexible and fluid

All told, supply chain managers should stress flexibility and fluidity in their RFP process, according to Michael Bohon, C.P.M., CMRP, director, Owens & Minor’s OMSolutions unit.

Developing a standardized RFP form may be fine but it must have flexibility built in to cover a variety of requests and situations, he noted.

"Use the document to build as much flexibility into the process as possible," he said. "Use the RFP as a middle step/stage in the process, not as a point too close to the end. Allow for as many changes, as much negotiation and more information gathering as you need after the RFP."

Furthermore, open-ended questions may be fine to ask so long as they "probe for new information, not just a confirmation of what you already know," he advised.

"Make sure your intentions are perfectly clear to the reader," he continued. "This is not the time for subtlety or vagueness. If you are not able or intending to be specific, say so and explain why."

To ensure consistency in how RFPs are handled as well as to prevent "side deals" from being attempted or established, it’s important to make one person the contact point for all communications regarding the RFP from external and internal points, he advised. And treat all suppliers equally to avoid issues of favoritism, he added.

Finally, supply chain managers shouldn’t move on once a contract has been awarded. Instead, they should evaluate each RFP process once completed. "We do not complete this step in most business processes and we lose the opportunity to learn and improve as a result," he said. HPN