Jump-start a strong vendor performance management program

Colleen O. HallMatt Szaflarski
| 12/19/2022
Jump-start a strong vendor performance management program

Are you making the most of your vendor relationships? Here are three steps for starting off on the right foot with a vendor management program.

Resource shortages, including human resources, are an unfortunate industry norm these days. Today’s revenue cycle leaders know that when staff members leave, it can be challenging to replace them.

To help navigate staffing shortages, many revenue cycle departments have outsourced certain functions, such as bill processing or communication between payors and providers, to maintain efficiency and gain the upper hand on their revenue cycle operations despite a challenging climate.

Third-party vendor relationships can help streamline operations and extend a team’s capabilities. However, without an effective vendor performance management program in place, challenges can arise within these relationships, leading to headaches for the team and potential financial and operational risks for the organization.

What is vendor performance management?

A strong vendor performance management program can be a driving force behind successful vendor relationships. But what does that mean?

Vendor performance management comprises all the steps a revenue cycle team takes to have successful oversight of a vendor. This encompasses hiring the vendor, outlining key performance indicators (KPIs) and performance goals, defining how to monitor the vendor, and, finally, measuring the vendor’s performance to be sure the organization is getting the maximum benefit from the relationship. Successful vendor performance management is a positive relationship in which the revenue cycle team and the vendor are aligned regarding what goals the organization is measuring, how it is measuring those goals, and how the vendor is reporting back to the revenue cycle team.

In a successful vendor relationship, revenue cycle staff can spend less time managing that relationship and more time focusing on increased visibility into whatever areas of the revenue cycle the vendor is covering. This can provide key organizational stakeholders and decision-makers essential insights into ongoing financial performance.

Jump-start an effective vendor performance management program: 3 steps

The following three-step process can be a helpful jumping-off point for organizations to begin monitoring and managing their third-party vendor relationships. Though not comprehensive, these steps can serve as a good foundation for starting off on the right foot with a vendor management program.

Step 1: Establish metrics and baselines

During this step, an organization determines the KPIs the vendor will monitor and best-practice targets for each KPI. It’s important that the KPIs chosen will help the organization reach established goals – and lead to the most success. As part of this step, the vendor performance management team should validate the vendor’s calculation methodology for each KPI and the data sources the vendor uses to extract data for the established metrics.

Also during this stage, the organization and vendor should agree on the baseline periods used to measure performance. Many baseline numbers were affected drastically by the pandemic, so looking back at figures from one year ago, a typical method for establishing a baseline metric, might not produce the most accurate information. The vendor performance management team should review the organization’s data to determine the best baseline numbers to set up the vendor and organization for success.

Finally, the organization and the vendor should determine how frequently the vendor will report results to the organization.

Step 2: Define the measurement process

This step involves determining how the vendor performance management team will measure the KPIs with which the vendor will work. For example, does the team want to look at cash as a percentage of gross revenue or as a percentage of net patient revenue? What should the numerators and denominators be?

It’s also important to make sure the information being pulled is easily accessible – and accurate. Vendor performance management team members should evaluate the data and look for trends that do not align with predetermined baseline figures. It’s a good idea to pull the first extract of data and – alongside the vendor – compare it with the baseline measurement to reconcile any variances. In addition, obtain all schema crosswalks (mapping two data points together to categorize as an exclusion) that the vendor will use to determine inclusions and exclusions for each metric. For example, an organization might not want certain financial information included in the vendor’s scope of work, so a specific transaction code would be incorporated in a schema crosswalk as out of scope. The vendor performance management team also should design a scorecard for data to be reported to the vendor.

Failing to perform this due diligence can result in negative consequences for the vendor relationship, especially if the vendor doesn’t feel confident that it is working with accurate numbers. Verifying the accuracy of data and how it will be measured also can help the team avoid wasting time in meetings with the vendor or disagreeing about the data. That time could be better spent productively discussing areas of improvement with the vendor instead. To that end, during this step, the vendor performance management team also should work with the vendor to establish communication protocols.

Step 3: Monitor ongoing vendor performance

This step focuses on how the vendor performance management team will monitor the vendor’s performance. A first question to ask during this step is how often the team will receive reports from the vendor (for example, daily or weekly). Establishing that time frame helps the vendor performance management team determine how often it needs to pull data to share with the vendor.

The vendor performance management team also should plan to set up weekly progress updates to allow the vendor to discuss outstanding information needed for calculating metrics. After receiving metrics from the vendor, the team will want to perform a detailed analysis to determine if any discrepancies exist in the results.

Seek help with this multistep process

Effectively managing vendor relationships goes a long way toward making these relationships run more smoothly, helps build trust, and can improve overall revenue cycle performance.

For help confirming that your organization has an effective vendor performance management program, consider working with specialists in this area to assist with establishing KPIs and outlining the measurement processes using industry best practices. Facing ongoing resource shortages, revenue cycle leaders today more than ever need to wring efficiencies from every area they can.

Contact us

Colleen Hall portrait
Colleen O. Hall
Senior Vice President, Revenue Cycle, Kodiak Solutions
Matt Szaflarski
Matt Szaflarski
Director, Revenue Cycle, Kodiak Solutions