Contracts are the glue holding every operation together within the healthcare industry.
They connect employees and employers, suppliers and buyers, ensuring each party remains protected. Whether dealing with hiring, your supply chain or equipment, contracts can be long and complex and require time and effort to ensure they’re structured in your best interest. Understanding the different types of contracts and how they work is the first step to an effective contract management operation.
Supply Chain Contracts
Healthcare organizations depend on countless materials and products to complete daily tasks. Some of the most common products used throughout healthcare centers and hospitals include syringes, defibrillators, sterilizers, gloves and masks.
You can create supply chain contracts to secure these raw materials, products and services from reliable suppliers. These written agreements guarantee the supplier will provide specified goods or services for a pre-determined period at a fixed cost. They also outline delivery schedules, consequences for failing to adequately buy or supply and termination conditions.
Types of Supply Chain Contracts in Healthcare Facilities
Healthcare professionals use expensive instruments daily, and they might have equipment lease contracts rather than buying items outright. This strategy provides additional flexibility and security to obtain the required tools at a more convenient price. However, there are other solutions healthcare providers might employ to get the resources they need. Common types of supply chain contracts found within healthcare facilities and organizations also include:
- Purchase orders: A purchase order is a binding contract the buyer produces detailing what they want to purchase from a supplier. This document includes information like quantity, payment terms and delivery.
- Service agreements: These contracts are lists of all the services a supplier agrees to provide. It also outlines pricing, timelines and the rights afforded to each party.
Distributor agreements: Distributor agreements are formed between suppliers and merchants. The seller, or distributor, agrees to market and sell specified providers’ products for a fixed fee.
Labor Contracts
Standard labor agreements are legal contracts outlining the terms and conditions of employment at an organization or company. These documents vary by company and position and provide explanations of employee responsibilities and duties, employment terms, compensation and benefits and conditions of termination.
Commonly used labor contracts in every industry include:
- Union contracts: A single, written agreement between the employer and a group of employees agreed upon using collective bargaining. These documents detail wages, hours and scheduling, time off, working conditions, advancement and more.
- Non-union contracts: Customized documents that employers and individual employees negotiate. Individual employment agreements state conditions of employment and are often subject to governmental regulations.
- Independent contractor agreements: Contractors are not employees and agree to perform specific services for a company in return for payment. These contracts outline the scope of work, compensation, deadlines and partnership length.
Special Healthcare Labor Contracts
Labor contracts are required for every employee within your organization. Which one you use depends on their position and union status and must meet all state and federal employment laws. However, there are special circumstances in which you must utilize other contract types, such as hiring a physician.
Many states prohibit medical facilities, like hospitals, from employing physicians directly. Detailed physician employment contracts or independent contractor agreements are often necessary.
They include schedule expectations, wages and benefits, on-call requirements and a restrictive covenant outlining non-compete conditions. If you are hiring for the role of medical director, a separate contract is also required and includes similar information.
Purchased Services Contracts
A lot goes into running and maintaining your healthcare facility. It takes time, effort and money to provide patients with the care and attention they deserve. Partnering with outside companies will ensure your operations are sustainable and run smoothly while saving you money. These partnerships are usually called purchased services and are part of your non-labor spending budget.
Purchased services agreements are the contracts between your organization and outside businesses. They include information regarding contract terms, scope of services, pricing structures and scheduling. Standard outside services many organizations choose to outsource include:
- Laundry and linen
- HVAC
- Marketing
- Rehabilitation services
- Specialty equipment
- Legal services
Types of Purchased Services Medical Contracts
Your healthcare business depends on the services you source from outside businesses and contractors. Outsourcing activities like coding, transcriptions and billing collections require managed services agreements (MSAs) and outsourcing agreements. These examples of healthcare contracts outline the promised service, payment structures, liability protections and timelines. They can also include penalties, fines and exit strategies.
Professional service agreements (PSAs) are another form of purchased services contract that aims to reduce company expenses. Facilities like hospitals often use PSAs to enlist the help of specialized physicians such as anesthesiologists, radiologists, hospitalists and many other professionals.
These professionals remain independent from the business while adhering to a contract tailored to fit the needs of your business or organization in return for payment. You can create them for a single service provider or a whole department, varying in term length, schedule type and responsibilities. These contracts tend to be more complicated, yet they can be extremely powerful when they are done right.
Informational Technology Contracts
As technology has continued to advance, it has become a staple of the healthcare world. Healthcare companies everywhere depend on cutting-edge technology and software to treat patients effectively and deliver reliable services.
Technology contracting is critical to these companies acquiring the resources they need. Most applications, software and information-based technology require licensing agreements detailing necessary fees, the duration of the agreement and prohibited activities.
Examples of Healthcare Informational Technology Contracts
The healthcare industry is extremely reliant on innovative technology to continue meaningful growth. With this, you may see various types of healthcare contracts, including:
- Software licensing agreements: This is a legally binding contract between your healthcare organization and a technology company permitting the use of specific software. It defines where a purchaser can install the software, how to use it, how much it costs and how a party can terminate it.
- Software development contracts: These agreements enlist the help of developers to design and implement custom programs and applications to expand business offerings and capabilities. A software development contract offers an overview of the project details and expectations, including the timeline, expectations, budget and other information.
- Information technology outsourcing (ITO): ITO agreements are legal documents describing all the work to be handled by a third-party partner. You can establish relationships with vendors for infrastructure management, data center services and application development and maintenance.
- Data use agreements (DUA): Providers use DUAs with patients when transferring protected health information, like limited data sets and identifiable data. This contract establishes both parties’ rights, responsibilities and obligations regarding permitted use, ownership and liability.
- Application service provider (ASP) agreements: Healthcare companies can work with vendors to obtain the right to use their software or application. Instead of licensing and receiving a copy of the software, organizations rely on vendors to operate and manage the software on their behalf, often charging a usage fee or subscription.
- Business process outsourcing: Organizations choose to streamline their technological supply chain by subcontracting specific jobs to third-party service providers. Popular online sectors that healthcare facilities create agreements for include finance and accounting, human resources and customer call centers.
Pharmacy Contracts
Drugs and medications are heavily regulated at the state and federal levels. Contractual agreements are used between healthcare organizations and pharmacies to protect each party’s rights and meet legal restrictions.
Pharmacy contracts are legal agreements between pharmacies and healthcare organizations. These detailed documents establish the terms and conditions regarding various operations, including purchasing, dispensing and paying for drugs and related services.
Types of Pharmacy Contracts
Pharmacy contracts will likely vary from pharmacy to pharmacy, and they are heavily dependent on provided services. Essential terms covered within these types of medical contracts include the scope of services, pricing, confidentiality, compliance and termination. Whether you run a pharmacy or work side by side with them, you should be aware of the following contracts you might encounter:
- Manufacturer rebate agreements: Also known as vendor rebate agreements, these arrangements act as incentives to increase manufacturer sales while offering businesses reduced price points. This contract details the conditions a healthcare organization must meet before they receive a rebate check or future discount.
- Group purchasing agreements: Specialty healthcare entities and pharmacies can enter into group purchasing organizations to secure supplier discount pricing. Organizations use these agreements to increase their buying power and negotiate with manufacturers, vendors and suppliers.
- Pharmacy benefit management (PBM) contracts: These documents facilitate the relationship between pharmacy benefit managers and employers, health plans, labor unions, wholesalers and other organizations involved in healthcare. PBM contracts describe the manager’s role in processing and paying prescription drug claims and outline pricing areas and unique exclusions.
Choose Pathstone Partners to Handle Your Healthcare Contracts
Legal contracts come in all shapes and sizes within the healthcare industry, facilitating integral services that businesses and organizations rely on to succeed. Understanding how each operates and how to navigate through each situation accurately is crucial to your growth. It will ensure you’re capable of effectively helping and caring for customers and patients.
Pathstone Partners is devoted to providing your business with a broad spectrum of exceptional healthcare consulting services to manage all your medical contract needs. We have a long history of working with healthcare organizations of all sizes, identifying challenges and capitalizing on opportunities to enhance performance. Our healthcare consultants have unrivaled expertise to oversee contracts across all your business ventures. Get in touch with us to get started today.