From medical equipment suppliers and IT service providers to pharmaceutical manufacturers and staffing agencies—healthcare facilities use a wide range of vendors to deliver patient care. As hospital margins thin, it is more important than ever for hospitals and health systems to effectively manage vendor relationships to reduce costs, ensure compliance with industry regulations and standards, maintain quality control and mitigate risk.  

In this guide, we walk through the basics of vendor management, what to look for in healthcare vendor management systems and overall hospital vendor management system best practices.  

What is vendor management?

Vendor management is the process of selecting, evaluating and managing vendors who provide products or services to healthcare organizations. Effective vendor management is critical for healthcare organizations to ensure that they are working with high-quality vendors who can provide products and services that meet their needs and comply with applicable regulations and policies. 

Vendor management typically involves the following activities:

1. Vendor selection: Identifying potential vendors who can meet the organization's needs and evaluating them based on factors such as quality, cost and compliance. 

2. Contract negotiation: Negotiating contracts with vendors that clearly outline the terms and conditions of the relationship, including pricing, delivery schedules and quality standards. 

3. Performance monitoring: Monitoring vendor performance to ensure that they are meeting the organization's expectations and complying with applicable regulations and policies.  

4. Issue resolution: Addressing any issues that arise with vendors, such as quality or delivery issues, to ensure that the organization's needs are being met. 

5. Relationship management: Building and maintaining strong relationships with vendors to ensure that the organization is getting the best possible products and services at a reasonable cost. 

Why is vendor management important in healthcare?

Vendor management is important in healthcare because the vendors that serve healthcare facilities directly impact patient safety, regulatory compliance, hospital budget, community perception and patient experience.  

Effective vendor management processes ensure patient safety by confirming that vendors are properly qualified, reducing the risk of patient harm. Hospital vendor management also helps healthcare facilities comply with regulations, reducing the risk of legal and financial penalties. 

In addition, healthcare vendor management systems can help healthcare facilities reduce vendor costs by equipping healthcare leaders with information to negotiate favorable contracts, reduce unnecessary spending and improve efficiency.  

Finally, vendor management can assist with community perception by ensuring that hospital vendors are reputable and reliable, reducing the risk of negative publicity and reputational damage. 

What is a vendor management system (VMS)?

A vendor management system (also referred to as a VMS) is a software platform that automates and streamlines the vendor management process. It provides healthcare organizations with a centralized system for managing vendor relationships, contracts, performance and compliance. 

The features of a healthcare vendor management system vary depending on the vendor management needs of the healthcare facility. However, some general features of hospital vendor management systems may include:

• Vendor registration and onboarding: A VMS system typically includes a portal where vendors can register and provide information about their company and the services they offer. The VMS system may also automate the onboarding process, including collecting necessary documents and conducting background checks. 

• Credentialing and compliance management: The VMS system may automate the vendor credentialing process, including verifying credentials, tracking expiration dates and monitoring compliance with applicable laws and regulations. 

• Vendor selection and contract management: The VMS system may provide tools for selecting vendors based on specific criteria, such as price, quality and availability. The VMS system may also automate the contract management process, including negotiating contracts, tracking contract terms and conditions and managing contract renewals. 

• Performance tracking and reporting: The VMS system may track vendor performance metrics, such as service levels and customer satisfaction and generate reports for stakeholders.  

• Spend management: The VMS system may track vendor spend and provide tools for managing vendor invoices and payments. 

• Communication and collaboration: The VMS system may provide tools for communicating with vendors, such as messaging and document sharing and for collaborating with internal stakeholders, such as procurement and compliance teams. 

What are the benefits of a VMS?

Overall, a hospital vendor management system is designed to automate and streamline the vendor management process, including vendor registration and onboarding, credentialing and compliance management, vendor selection and contract management, performance tracking and reporting, spend management and communication and collaboration. 

Healthcare vendor management systems benefit hospitals because they reduce administrative burden, reduce risk and increase price transparency across vendors.  

Some of the key benefits of a VMS include: 

• Efficiency: A VMS automates many of the time-consuming tasks associated with vendor management, such as document management, performance monitoring and issue resolution. This can save healthcare organizations considerable time and effort and enable them to manage their vendor relationships more efficiently. 

• Compliance: A VMS helps healthcare organizations ensure that their vendors are compliant with applicable regulations and policies. The system can automatically track vendor credentials, certifications and licenses and alert the organization if a vendor is not in compliance. 

• Cost savings: A VMS equips healthcare organizations with data to negotiate better pricing with vendors by providing data on vendor performance, quality and costs. The system can also help organizations identify areas where they can reduce costs by consolidating vendors or negotiating better terms. 

• Improved quality: A VMS allows healthcare organizations to monitor vendor performance and quality to ensure that they are providing high-quality products and services. This can improve the quality of care and patient outcomes. 

• Analytics: A VMS provides healthcare organizations with data and analytics on vendor performance, costs and compliance. This can enable organizations to make more informed decisions about vendor relationships and identify areas for improvement. 

An effective hospital vendor management system empowers healthcare organizations to manage their vendor relationships more efficiently and cost-effectively. It can also help healthcare organizations ensure compliance, reduce costs, improve quality and make more informed decisions about their vendor relationships. 

In addition to benefiting healthcare organizations, healthcare vendor management systems benefit vendors too. For example, they help staffing agencies because they give them an equal chance to fill an opportunity. This is a dual benefit for both the staffing agency and the healthcare organization because it creates healthy market competition between staffing agencies. The staffing groups compete with one another to try to fill the healthcare organization’s need with the best talent at the lowest price in a timely manner.  

Downstream, an effective VMS can also benefit vendor labor such as travel nurses because the VMS gives the vendor direct access to the health system and grants the nurse greater visibility into available jobs they may want to take. Rather than the staffing agency vendor acting as a broker, the VMS creates true market competition and gives professionals like contingent nurses more choice over where they want to work. The result is more qualified nurses working in the places they want to work.  

What is the typical vendor management lifecycle like?

The typical vendor management lifecycle in healthcare involves the following stages:

• Vendor selection: The first stage of the vendor management lifecycle involves identifying potential vendors who can meet the organization's needs. This may involve conducting research, soliciting bids and evaluating vendors based on factors such as quality, cost and compliance. 

• Contract negotiation: Once a vendor has been selected, the organization must negotiate a contract that clearly outlines the terms and conditions of the relationship. This may involve negotiating pricing, delivery schedules, quality standards and other key terms. 

• Vendor onboarding: Once a contract has been signed, the organization must onboard the vendor. This may involve setting up vendor accounts, providing training and ensuring that the vendor understands the organization's policies and procedures. 

• Performance monitoring: The organization must monitor the vendor's performance to ensure that they are meeting the organization's expectations and complying with applicable regulations and policies. This may involve tracking vendor performance metrics, conducting audits and addressing any performance issues that arise. 

• Issue resolution: If issues arise with the vendor, the organization must work with the vendor to resolve them. This may involve investigating the issue, identifying the root cause and implementing corrective actions to prevent the issue from recurring. 

• Contract renewal or termination: At the end of the contract period, the organization must decide whether to renew the contract or terminate the relationship. This decision may be based on factors such as vendor performance, cost and changes in the organization's needs. 

By following a comprehensive vendor management lifecycle, healthcare organizations can ensure that they are working with high-quality vendors who can provide products and services that meet their needs.

What are best practices for vendor management?

Many large health systems handle vendor management through a managed service provider (MSP) that functions as a vendor broker. In other words, the MSP evaluates if they can fill the need and if not, they send that need out to their channel partners. Some MSPs leverage healthcare vendor management systems and others handle the process manually. Using an MSP relieves administrative workload for hospitals but reduces healthcare organization visibility into available vendor options and pay rates, which limits healthcare organization access to talent and creates inflated prices.  

Other health systems self-manage vendors without an MSP or VMS, which is often a siloed and manual process. There are many checkpoints in the vendor management process that are difficult to manually track.  

Today, it is best practice to leverage a technology-powered vendor management system that connects health systems directly with vendors and allows for centralization of the vendor management process. Technology allows healthcare systems to: 

• templatize vendor management (to quickly create standards for every specialty and workforce group) 
• automate traditionally manual processes  
• reduce administrative burden 
• and create more competition and price transparency among vendors  

An optimized hospital vendor management system also allows vendors better visibility into the healthcare organization’s needs and more direct access to communicate with the organization.

Here’s an example of how an all-in-one tech-powered VMS works:

A nurse manager at a hospital using a VMS to credential nurses for a variety of inpatient and non-inpatient nursing needs submits a request for a 13 or 26-week nurse contract to cover a leave of absence. The VMS flags the request for a hospital executive and finance team to approve. When it is approved, that request goes to all vendors working in the VMS (perhaps that is 5 different staffing agencies) and all 5 staffing agencies have equal opportunity to source candidates and upload documentation to attempt to fulfill that need at the best rate in the timeliest fashion. From there, the nurse manager is easily able to parse available options in the VMS portal and manage the interview, offer, onboarding, timecard and bill payment process, all through the VMS platform. This means that everything is documented every step of the way, streamlining all aspects of the vendor management process into one central system. This approach mitigates the risk of one-off emails or text messages, simplifies record-keeping and streamlines operations. 

Beyond using a technology-powered hospital vendor management system, all vendor management processes should include the following best practices:  

• Due diligence: Before selecting a vendor, conduct thorough due diligence to ensure that the vendor is financially stable, has a good reputation and complies with relevant regulations. 

• Clear contractual terms: Ensure that all vendor contracts include clear terms and conditions, including service-level agreements, confidentiality requirements and termination clauses. 

• Vendor performance monitoring: Regularly monitor vendor performance to ensure that they are meeting contractual obligations, including quality standards, timeliness and regulatory compliance. 
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• Vendor risk management: Assess vendor risk and implement risk mitigation strategies, such as contingency planning, disaster recovery and cybersecurity measures. 

• Regulatory compliance: Ensure vendors comply with all applicable regulations, including HIPAA and HITECH and specialty-specific licensure requirements for providers.  

• Effective communication: Maintain open and transparent communication with vendors, including regular reporting and issue escalation procedures. 

• Maintain a vendor portfolio: Maintain a portfolio of vendors and periodically review it to ensure that it is up-to-date and that vendors are meeting organizational needs. 

• Train staff: Train staff on vendor management policies and procedures to ensure that they understand their roles and responsibilities in managing vendors. 

How Works' VMS can help with vendor management

Works' VMS is an all-in-one hospital vendor management system that can be customized to any healthcare organization’s vendor management needs—whether an organization works with an MSP or self-manages. Our VMS stands apart from other healthcare vendor management systems because it empowers health systems to understand trends in vendor pay in their region and allows them to adjust rates. Effectively manage vendor relationships, mitigate risks and ensure regulatory compliance while improving patient care and financial stability with Works' data-powered VMS. Request a consultation at https://works.trustedhealth.com/works-demo to learn more.