Updated on: November 29, -0001

Compliance Challenges with Supply Chain Vendor Contracting

By Bret Bissey, MBA, FACHE, CMPE
Original story posted on: September 7, 2016

Today’s healthcare environment features new challenges related to evaluating the performance of clinical vendors, but those challenges also present an opportunity for supply chain and compliance to collaborate in order to achieve success.

Let’s first look at some new developments in the compliance and risk management arenas that relate to contracting oversight.

Compliance

Justifying the need for a robust compliance program must continue to be an annual objective. When organization leaders view compliance programs simply as a business expense and not an investment, they are missing some of the operational and financial benefits that effective programs can provide. A simple “win” for an organization can feature the integration of compliant contracting efforts into business processes to make sure payments made in association with referral-based contracts (thus being subject to fraud and abuse risk via the Stark Law and anti-kickback statute) are for bona fide work performed. Payment for such work work must be commercially reasonable, of fair-market value, and not tied to any past, future, or present referrals.

Given the attention and recent high-profile settlements in this area, all organizations should have a robust and automated focus arrangement contract management process in place to minimize the potential for inappropriate arrangements occurring.

There are other relatively new areas of focus where compliance and risk management can provide organizational benefit: specifically, the review of clinical contracts is an area of major attention among accrediting organizations nationwide.

Measuring quality of care has always been a challenge in our healthcare system due to the variability of issues that affect patient outcomes. The most important issue inside hospitals and our healthcare delivery system is the care we provide.

The hospital conditions of participation (COP), first published in 1986, is the standard with which any hospital participating in Medicare, Medicaid, and other federal reimbursement programs must comply. The COP includes a specific measurement of the quality of care provided by clinical contractors in our hospitals. This measurement now is under the accreditation survey microscope nationwide. The relevant statute is COP LD,04.03.09, which states:

“Leaders must … oversee contracted service to make sure that they are provided safely and effectively … The only contractual agreements subject to the requirements at Standard LD.04.03.09 are those for the provision of care, treatment, and services provided to the organization’s patients. This standard does not apply to contracted services that are not directly related to patient care.”

In addition, the statute indicates that it does not prescribe the methods for evaluating contracted services. Rather, leaders are expected to select the best methods for their hospitals or organizations “to oversee the quality and safety of services provided through contractual agreement.”

To further reinforce the importance of reviewing organizations’ compliance with this, the Centers for Medicare & Medicaid Services (CMS) has announced that by 2018, half of Medicare spending outside of managed care will come along with incentives associated with achieving quality and managing standards. Given that surveyors now are measuring and reporting this quality standard, it is likely that the ability to accurately evaluate clinical vendors and implement corrective actions in response to any identified deficiencies will affect eligibility for some Medicare quality incentive payments beginning in 2018.

The final complicating factor for organizations is the growth in breadth and complexity of contracted services that merit oversight. In the past five years, the pace at which organizations engage third parties to provide clinical services has accelerated. Organizations make such decisions as a result of a variety of factors that include but are not limited to cost reduction pressure, the shift from fixed to variable labor, and access to expertise. This growth of contracted clinical vendors can present organizational risk if all contracts aren’t centrally organized for monitoring, managed by responsible parties, and constantly evaluated.

Supply Chain

Given that supply chain is engaged with the procurement of the majority of relationships with vendors, including those subject to COP standard LD.04.03.09, adoption of leading practices in this area is critical. Here are some best practices for organizations to consider from a supply chain perspective:

  • Identification – Organizations need to carefully screen all existing vendors to identify those that provide for the delivery of care, treatment, and services to patients.
  • Policy and Procedures – Given the importance of this directive, organizations should develop policies and procedures related to the purchasing and contracting of services. Leading practices require the inclusion of key stakeholders, to include quality, risk management, and patient safety representatives in the establishment of evaluation criteria for each contracted service.
  • Contracting – Organizations need to be thoughtful in the definition of evaluation criteria during the contracting process and include specific language and performance metrics. As an example, a lithotripsy services agreement could include criteria such as a specific threshold for adverse outcomes from extracorporeal shockwave lithotripsy procedures.
  • Ongoing Evaluations – Supplychain leaders, working with legal, compliance, and internal audit personnel, need to monitor evaluations to ensure that they are being performed according to accepted practices. A widely lauded strategy is to leverage technology to monitor the completion of evaluations across the entire portfolio and enable the management of diverse data sets.
  • Auditing - A proactive auditing function will need to be incorporated into processes in conjunction with other departments, such as finance and accounts payable, to ensure the proactive identification of any outliers.
  • Supplier Relationship Management – Leading organizations have further tiered their contracted service providers, with the purpose of working through joint process improvement with their top-tier suppliers.

 

Supply Chain and Compliance

Given the importance of quality measurement and potential reimbursement impact, each organization’s supply chain and compliance leadership, with board support, should establish policies and procedures and communicate expectations organization-wide. This would include communicating consistent identification, evaluation, and management of vendors for the provision of care, treatment, and services given to patients. This will require a well-constructed process (including initial education) that may involve upgrading the current contract management systems (recommend one entity-wide) and processes in place – and also ensuring that all employees are invested with the approved contract management processes and understand the draconian implications of any noncompliant behaviors.

After assurances are in place to verify the identification of all applicable clinical contracts, the next objective is to make sure that all vendors are assigned a responsible party to perform evaluations within the expected time frame and in accordance with approved organizational standards, per each contract’s expectations. Furthermore, organizations need to monitor any identified deficiencies for corrective action and follow-up. The evaluation and real-time monitoring of corrective actions likely will require an automated evaluation management system.

Quality measurement has always been a challenge. COP LD04.03.09 provides one objective measurement that accrediting organizations use today to assess whether clinical vendor performance is being evaluated in hospitals. It is important to dedicate appropriate resources toward this requirement to protect any potential loss of federal incentive payments beginning in 2018, and to ensure that patients are receiving the highest quality of care.

About the Author

A veteran in healthcare compliance (since 1997), Bret Bissey has served as senior vice president and chief ethics compliance officer at UMDNJ in Northern New Jersey. The author of the Compliance Officer’s Handbook, he has been a thought leader and popular speaker at industry conferences and meetings.  Bissey has more than 30 years of diversified healthcare management, operations, consulting, and compliance experience.

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