Record Retention Services are one of the most crucial business services health systems must procure, but rising costs in the industry combined with ever-changing requirements from the Joint Commission have led vendors to create murky pricing models and contracts that are difficult to discern.
Increasing competition in the record retention business has driven new technologies and enhancements in the physical features of the massive, sprawling warehouses used to store patient medical records. Requirements from The Joint Commission have forced vendors to invest more in their businesses. To recoup costs associated with increased competition and regulation, vendors have created opaque and difficult to unravel pricing models. They have also introduced measures that discourage health systems from switching vendors. These new and complex record retention contracts require special attention.
Early Contract Termination Considerations
For example, watch for vendors that are unwilling to offer Termination for Convenience provisions that would allow health systems to invoke early termination rights without penalty. Vendors are also imposing Permanent Withdrawal Fees which health systems must pay if they switch to a new vendor. These fees are on top of fees charged for the retrieval of boxes and material transfer fees. Fees can reach excessive amounts - as high as $500,000. Paying such fees are simply not an option.
How can you proactively protect yourself from such fees? Include contractual provisions that give you flexibility while offering vendors sufficient payment to cover the high costs of doing business. For example:
To make it easier to switch vendors, health systems should require new vendors to absorb the Permanent Withdrawal Fees and other switching costs charged by incumbent vendors. New vendors can then recoup these fees over the term of the new contract. New vendors are more willing to absorb switching costs if contracts are longer in duration. Therefore, consider extending contract length from the usual three years to five or even seven years.This will make it easier for the new vendor to spread out switching costs. Plus, the security of a longer-term deal often encourages vendors to offer other cost reductions.
The Right Purchased Services Contract Durations
While longer contract lengths help to reduce costs and mitigate issues when switching vendors, longer contracts can also mean less flexibility for health systems. Here is how you can address issues associated with longer duration contracts:
- Add Price Protection: Pricing should be held constant for the duration of the contract.
- Eliminate Minimum Volumes Clauses: As health systems rely less on paper, minimum volumes thresholds are highly risky over long duration contracts.
- Remove Fuel Surcharges.
- Mitigate Vendor Risk: Add provisions that limit closure or removal of your choice locations because there aren’t enough other customers using them.
In general, consider limiting the vendor to a single stop per facility and delivering as many records electronically (scan and email) to lower transportation fees.
Due diligence in preparing to bid records retention services can save health systems a great deal of money. Contact us to learn more about your unique situation.
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