Managing External Vendors in the New Health Care Industry: Maximize Visibility, Accountability, and Governance

---Terri Bernacchi, PharmD, MBA,  Cambria Health Advisory Professionals and Managing Partner at Quo Magis Partners 

Whether one considers the provider (hospital/medical), pharmaceutical or device industry, or the health plan perspective, today’s health care executive must be more be nimble than ever before in managing strained budgets and people resources, overcoming ever-greater challenges.  As the realities of Health Care Reform (HCR) unwind upon these organizations, managers must deal with new legal requirements and penalties that are still only partially defined.  Health care has always been a bit different from other business sectors because the customer consuming the good or service must rely on others to 1) select the product (e.g., the physician) and 2) still others to assure payment (e.g., insurance companies or administrators).  At the end of the day, however, regardless of what a health related company offers, it is ultimately the consumer who is to be satisfied. 

More than ever before, as costs shift back to the member through higher out-of-pocket cost-sharing or restricted choices, and as coverage rules are tightened in order to squeeze more out of every dollar, health care industry players must focus on how to attract and retain the individual.  A company’s resources will be focused more intensively on how to get to the patient or to smaller local units like the Accountable Care Organization (ACO) or local exchanges as traditional health plan and support vendors (like Pharmacy Benefit Managers and TPAs) consolidate and refuse to cover anything but the minimums. 

Today, getting to market successfully means that some key projects are managed internally, while others must be executed through a variety of vendors that promise lower costs and expedited results.   Managing your own company’s resource is one thing; staying on top of an outside vendor is quite another.    When engaging with any vendor--- after the contract has gone through procurement and the signatures have been applied to the deal---implementation and ongoing execution is the hard part.  Both sides name the business sponsors and managers for the relationship.   Over time, however, the designees are likely to shift and the Governance Plan may be neglected.  Senior executives may be late to realize that something has run amuck where promised results have not materialized or unanticipated snags have cropped up, costing precious resources or results.   

Certainly, if it hopes to be successful in the marketplace, a vendor will do its best to meet promises made to you.  Whether the deal involves a key project requiring executive oversight for an IT outsourcing deal, a business process service need, or (more commonly these days) is focused on a Copay Discount program which is a component of the launch of your product in the US market, the recipe for success is the same.    A few of these are spelled out below: 

1.       Emphasize the expectation for ongoing governance and accountability early in the vendor negotiation process.    This includes spelling out the key performance metrics and the frequency of reporting.

2.       Offer those in your company responsible for the ongoing management the program, assurances that executives are monitoring results, with results reported directly to your Board or senior management team.  Under larger vendor agreements, this designated manager may be responsible for a function that would have previously represented hundreds of employees; executive oversight should be reflective of that degree of resource allocation.

3.       Intervene early if something is going awry (delays, cost-overruns, or poor quality) by tracking key metrics on a routine basis. 

Additional insights for the reader may be gained from the linked research article, Critical Aspects of Governance in Outsourcing: Insights from Industry, by Markus Biehl, et al.  http://www.meritoutsourcing.com/images/Outsourcing_research_paper.pdf

The authors noted the high degree of (>75%) dissatisfaction of the buyer with outsourcing vendor deals; they also cited a strong correlation between governance and oversight capabilities and buyer satisfaction.  Obviously, players in the US health care industry will continue to use of external vendors to manage critical programs or projects because it is efficient.  These deals should be accompanied by a strong, accountable process for executives to measure results and intervene early.

Terri is the founder of Cambria Health Advisory Professionals and a Managing Partner at Quo Magis Partners. Among her current clients: a large health sciences firm serving payers, pharmaceutical and device manufacturers and other stakeholders. a small special needs health plan as a 5 Star Consultant, and several other health related clients. The thoughts put forth on these postings are not necessarily reflective of the views of her employers or clients nor other Health Advisory Professional colleagues. Terri has had a varied career in health related settings including: 9 years in a clinical hospital pharmacy setting, 3 years as a pharmaceutical sales rep serving government, wholesaler, managed markets and traditional physician sales, 3 years working for the executive team of an integrated health system working with physician practices, 4 years as the director of pharmacy for a large BCBS plan, 12 years experience as founder and primary servant of a health technology company which was sold to her current employer three years ago. She has both a BS and a PharmD in Pharmacy and an MBA.  *see: www.quomagis.com