Blog Post July 29, 2020 Enterprise Contract Lifecycle Management Systems: An Effective Option to Reduce Cost and Operational Waste Authors Justin Kessler Don Briones Healthcare organizations are struggling to find new ways to reduce operating costs with a reasonable return on investment (ROI) outside of normal cost management channels. Currently, hospitals and health systems are formulating short-term financial recovery plans and long-term cost management strategies only to discover more challenges, as many have already picked the low-hanging fruit. Financial recovery plans include investments in technology to improve clinical processes that reduce labor costs. However, organizations, and the healthcare industry in general, often do not consider investing in technologies that reduce nonlabor costs. The use of enterprise Contract Lifecycle Management (CLM) systems to manage the life cycle process of a contract—from request through execution, storage, and renewal—is an emerging area of focus to reduce vendor and purchased service contract costs and eliminate waste. Many organizations certainly use legacy contract management systems, but more often than not, one will find a mixture of departmentally focused systems (e.g., separate systems for payer and supply chain contracts) and contracts stored in various document scanning solutions, shared network drives, local hard drives, emails, file cabinets, or whereabouts unknown, and often forgotten entirely unless they result in a dispute or even litigation. A 2019 Black Book Market Research survey of healthcare CFOs, financial management, and business system users found that 96% of responding organizations were using manual processes or outdated systems to manage their contracts. Symptoms of a Low-Performing CLM Environment Though the CLM environment may be different at every organization, most organizations with legacy CLM environments experience the following symptoms to some degree: Lack of Contract Availability: Contractual language and conditions are rarely referenced during the term of the contract. But when the contracts are needed, organizations often realize they are difficult to locate and access, and sometimes can’t be found at all. Cumbersome, Disorganized, and Manual Contracting Processes: The contracting process often involves multiple systems, software programs, and communication media. Any misstep in the process can be inefficient and wasteful. Extended Time Frame from Contract Initiation to Execution: Often, contracts take far longer to execute than necessary, due to paper copies traveling around, forgotten emails, manual approval processes, or a lack of clear individual accountability at every step of the process. Sometimes, a contract can even fall through the cracks entirely. Limited Ability to Manage Contract Expiration and Renewal: Many organizations struggle to track when a given contract is coming up for renewal. It is even more challenging for these organizations to consistently and systematically enforce updated language or amendments as these contracts are renewed. Lack of Enterprise Visibility: Depending on the organization, there may be several different departments or groups that are entering into contracts without any oversight or visibility from the legal department and with no true understanding of the organization’s overall contract-based risk. Contract Analysis and Reporting: Most legacy systems do not provide organizations with the ability to conduct reporting, risk analysis, or any sort of analysis of contracts. This is especially troubling given that healthcare regulations are continuously changing and increasing in complexity, leaving the organization with limited or no insight to its new or increased risks due to these changes. The ROI of a CLM SystemAs healthcare technology costs continue to climb, and margins continue to shrink, every organization needs to be wise in its technology investments. As a result, the potential ROI of a system is often considered in an organization’s decision-making process. In addition to the softer ROI realized by the operational improvements mentioned above, an organization will realize several hard ROI benefits from implementing a new system, including the following: Increased Contract Management Performance: Increasing awareness of the terms, conditions, and rates negotiated in contracts through the CLM system enables management to identify situations to mitigate contract overpayments, missed contract expirations, and failed application of rebates and other discounts. According to the International Association for Contract and Commercial Management (IACCM), each organization has an average 9.2% potential loss to total contract spend that can be eliminated though a properly implemented CLM system. Black Book estimates that manual contract management costs health providers and systems nearly $157 billion collectively per year. Reduced Contract Cycle Time: Self-service features, automated alerts and approvals, integrations, and e-signatures will all result in reduced work effort and cycle time from contract request to creation, revision, and renewal processes, while providing transparency as to the contract’s status. Reduced Efforts from In-House or External Counsel: In healthcare, we expect (or hope) that providers are practicing at the top of their license.Lawyers are costly resources—why shouldn’t they be doing the same? By enabling others to draft initial contracts with self-service tools, negotiate within limited boundaries tracked by the system, and use automated approvals and tracking features, the lawyers can be freed up from “mundane” tasks and spend their time on higher-value-added activities. Penalty Avoidance and Recapture of Entitlements: Through the CLM system, significant penalties and entitlement recapture can be avoided with appropriate management identification and follow-up on specific terms and conditions and compliance with the contract, resulting in hard cost savings. Procurement and Supply Chain Savings: Depending on the size and structure of the supply chain organization, multiple contracts may exist with the same vendors, each with different terms, conditions, and rates. In addition, contracts managed through GPOs add to the number of additional contracts. Through the initial implementation of a CLM system, management can identify the tiers of multiple contracts with the same vendor, the variances associated with each vendor, and opportunities to consolidate agreements for the benefit of the organization. Further, procurement departments can determine the number of contracts with autorenewal clauses to renegotiate. These “evergreen” contracts often go for years without an examination of whether rates, terms, and conditions of the contract need to be updated as the organization continues to evolve. Reduced IT Costs: By consolidating legacy systems into a modern, cloud-based system, organizations may realize savings in application maintenance, server costs, and IT staff support for maintenance, integration, and upgrades. Operational Improvements of an Enterprise CLM System By implementing a modern enterprise CLM system, organizations will be able to realize many significant operational improvements, including: Contract Availability: All contracts will be available in the same place, and users of the CLM system will be able to locate and access the right information at the right time and in the right context to empower business decision-making. With the ability to manage access based on user role, there is no need to worry about contracts being accessed by unauthorized personnel. Ease of Use and Automation: A modern CLM system will support increased ease of use through self-service features such as the ability to requisition contracts or even initiate contracts with role-based templates and preapproved language and clause libraries. Interactions with non–system users can be streamlined with features such as collaboration portals, redlining with contracting partners or outside counsel, or e-signature for approvers. Automated alerts and flags will help to manage deadlines, expiring contracts, and renewals requiring updated language or amendments. Finally, support for mobile devices will enable users to access the system wherever they are. Standardized Processes: By implementing a single enterprise CLM system, an organization can organize all departments that create legally binding documents and enforce standard processes and approvals across the contract life cycle. Additionally, the organization can ensure that only an approved and current set of clauses and language are used. Integration with Third-Party Systems: Most current CLM systems offer integrations with other systems that help with the automation, speed, and accuracy of contracting processes. Common integrations included with customer relationship management systems, such as Salesforce and Microsoft Dynamics, allow for synchronization of contacts, organizations, and leads/opportunities. E-signature vendors, such as DocuSign or Adobe Sign, help to facilitate and streamline authorization and signing processes. Supply chain systems, such as Infor, Oracle, and Workday, help to support the management of vendors, procurement contracts, rebates, etc. Increased Compliance: In itself, having every contract in a known and accessible location is a big win. However, an enterprise CLM system will further compliance efforts through consistent and standardized processes (under oversight from legal counsel), auditing capabilities, and artificial intelligence (AI)–enabled analysis tools that help the organization to root out risky contract clauses. Additionally, in the face of changing and ever-increasing regulations, the organization will be able to quickly understand and address areas of risk as they arise. Also, clinical and operational managers will be able to easily access and understand the terms and conditions of agreements most impacting their day-to-day work, allowing for improved decision-making and adherence. AI and Other Technology Innovations: Customers implementing a new system will be able to take advantage of vendor innovations in AI to support features, such as AI-powered wizards, that can: Guide the selection of templates and clauses.Automate data capture and metadata tagging from uploaded contracts (e.g., outside paper).Review and analyze the risk exposure due to existing contracts as the business and regulatory landscape changes.Process automation and risk analytics as they are introduced by the vendor.Considerations to Adopt Enterprise CLM SystemsContracts are important economic assets in healthcare organizations today. As healthcare organizations continue to be challenged to find additional ways to ease the financial burdens of their operations, CLM is a generally untapped area to gain contract management process efficiencies, reduce operating expenses, and increase contract compliance. The opportunities for financial, operational, and compliance benefits increase proportionally as organizations have manual contracting processes and decentralized contact repositories. Also, as the healthcare industry continues to see an increasing volume of organizational merger and acquisition activity, post-transaction integration or divestiture may increase the opportunity exponentially as additional manual processes and technologies are introduced and need to be redesigned. For some organizations, the hard ROI of a new CLM system may not fully cover the cost of implementation. However, given today’s healthcare environment, organizations can’t afford not to consider investing in a modern enterprise CLM system.