Hospital purchasing contracts exist to protect an organization’s funds by clearly defining suppliers’ terms. Not having a contract on a regularly purchased item can lead to higher pricing, as one of our hospital clients discovered after a vendor rep left.  

The hospital had a verbal agreement with the manufacturer’s representative for textile products, which were purchased through a distributor. After the rep left the company the distributor began charging the hospital the manufacturer’s list prices because it had no vendor agreement for the rep’s discounted pricing.

Since the hospital also lacked a contract in its system for the discounted pricing, invoices with the new, higher price were approved and paid as presented. This cost the hospital considerably, and the overcharges could have been prevented with proper documentation of the vendor relationship and a pricing review.

TAG Tips for Managing Your Purchasing

If your Purchasing department has found itself in similar situations, it might be time to reevaluate how you are managing your purchasing, vendors and contracts. Here are a few simple solutions your team can implement:

• Link discounted pricing to contracts. In our example, the hospital allowed the vendor to control pricing, through its rep. When necessary, the health organization could not justify its discounted prices.
• Investigate price discrepancies between purchase orders and invoices. Discrepancies are signals that something changed—a new contract was signed but not uploaded in the vendor’s system, or new contract approval was delayed and no agreement was made to hold pricing between contracts. When incorrect invoices with higher prices are approved without understanding the root causes of discrepancies, those situations can lead to overcharges if subsequent POs include the incorrect costs. In the above example, had hospital staff investigated why there was a price jump, they may have noticed the need for a contract to continue the lower pricing.
• When discrepancies exist between purchase orders and invoices, reconcile the issues first and then make payments. If a vendor makes a mistake, why give them your money and then ask them to credit the mistake? Pay correct invoices, not incorrect ones.

We help hospitals and health systems across the country manage their Purchasing and Accounts Payable departments, to identify waste, recover lost funds, and correct any root cause. Get in touch, and we’ll show you just how easy it is to improve your bottom line.