Sourcing as a Strategic Means for Monitoring Rebates

Why Rebates?

Rebates act as a great mechanism for hospitals to generate savings from vendors that are not willing or able to offer any further price concessions up front. These vendors are often more accepting of issuing rebates once a certain purchasing threshold has been met. These rebates and thresholds are negotiated during the contracting process and are often created to include a group of product options under different categories compelling hospitals to purchase more supplies from individual vendors or a specific group of vendors through a group purchase organization (GPO). Since these rebates are the result of work done by the Sourcing department, it is logical that Sourcing would be responsible for their tracking and distribution.

Why do Hospitals Miss out on Rebates?

Typically, hospital Sourcing departments receive rebates by way of a refund check from a vendor. This is the ideal rebate method as it allows the sourcing department to account for the receipt of the rebate along with distribution back to the proper department’s budget. While rebates by check have their own risks as mentioned below, keeping the rebate process under one department’s control mitigates these risks compared to other methods.

In other instances, vendors may issue a credit in the form of a credit memo to the account. This creates a greater risk to the Accounts Payable (AP) department receives a portion of the rebate responsibilities. AP departments may not know how to process rebates as the credit memo will not reference a PO(s) or original invoice(s). This leads to delays in entering the credit into the ERP system. This also creates an opportunity for vendors to apply rebate funds to inappropriate charges.

Common reasons that rebates are not received:

• Vendors will have internal/unilateral policies that a rebate will not be issued if the account has past due invoices
• Suppliers often send the rebate check to the sales rep, who may neglect to get the check to the hospital
• Rebates were due but never issued
• Checks were lost in the mail
• Credit was issued as a credit memo and bypassed the Sourcing department
• System errors with the vendor resulting in rebate being sent to an incorrect party/address

How do Healthcare Systems Protect their Rebates?

Contracting Measures

If a rebate is involved when negotiating a contract, include a statement directing all rebates to be issued in the form of a check to the appropriate Rebate Specialist within Supply Chain operations. This allows the responsible Sourcing analyst to confirm the rebate has been received and promptly distribute the savings back to the correct department’s budget.

TAG TIP: This statement should specify a point of contact and address for delivery of the check. Specify a particular position or title within Supply Chain to receive and process the rebate check.

Tracking Programs

A rebate tracking software program is encouraged. However, a simple tracking system can be created with such tools as Microsoft Excel and Access.

The moment a contract is executed the tracking tool must be used to create what will be considered anticipated rebates. For example, if a contract is executed with a bi-annual rebate for one year, the program should be updated to create two records a year of an anticipated rebate along with the expected date and anticipated/estimated amount.

Once the rebate is received, the tracking program should be updated to reflect the actual rebate received, which will serve as a safeguard if the amount significantly differs from what was expected. Having a rebate tracking process allows the identification of variances between "expected" and "actual" rebates. Providing the opportunity to ensure correct rebates are received. Should an anticipated date pass with no rebate, it should be set to trigger a report or alert of any rebates not received, which would then become the responsibility of the Sourcing agent to resolve with the vendor.

Hand Delivery is Key

Lastly, with large rebates, stay clear from interoffice mail when possible. It is always best to require checks to be hand-delivered. Interoffice mail offers yet another mechanism for the rebate to get lost.

Need help implementing an ideal rebate tracking process? Reach out now and get started protecting your rebates now.