Medical Practice Tips for Negotiating Vendor Contracts
Creating new revenue sources to attract new patients, and better serve existing patients, is critical for growth in any company. As the saying goes – if you are not growing, you’re dying – so grow, baby grow! Dr. Reynolds points out in his blog article 3 Keys to Revenue Success, there are only three ways to increase revenue:
- Increase the number of customers,
- Increase the price per customer, and
- Increase the number of times a customer returns
One way to achieve increased revenue is to contract with a vendor to provide services. For example, working with an allergy testing company or DME vendor. This is a good way to provide a new line of service with minimal investment.
In the excitement of discovering a new revenue source, we tend to pay less attention to the contract. A good salesperson knows they must gain your trust before you become a client. The vendor can promise anything, but what are they obligated to deliver? That question is answered in the service agreement or contract. Remember vendors also want to increase their revenue and grow. Don’t get caught up in the emotion of the sale.
Read and ask questions about the agreement until you understand it completely. Here are some of the critical questions you should clearly understand before signing the agreement.
What is the initial term of the agreement?
My experience is they will ask for multiple years of the initial term. It is understandable why the vendor would request multiple years (3, 5 or more). As the client, are you confident that a multi-year initial term is in your best interest?
How can you term the agreement?
It is not uncommon for the vendor to tell you “termination without cause” is 90 days. The terms sound acceptable, but what isn’t said is that the agreement states notice must be provided prior to 180 days of the agreement’s anniversary date. If you do not provide notice of intention to terminate within the first 6 months of the anniversary date, you are obligated to provide services until the next window opens.
Is there non-compete language?
Many of the vendor agreements stipulate a term of non-competition for two years as an example. If you have attracted a substantial number of new customers and you decide to terminate the agreement, they must seek services from another provider. Failure to comply with the non-compete provision may result in substantial damages owned by your company.
These are just a few of the questions you should be asking when negotiating an agreement. Medical Practice Success is here to assist in any way we can to help make your practice more successful!
Mark Hobgood
Chief Credentialing and Contracting Officer
Medical Practice Success
