The Hidden Costs of Vendor Contracts: How Boilerplate Terms Can Undermine Hospital Budgets

Cesar A. Román, CMRP, CPHRM, is the Director of Strategic Sourcing and Procurement Operations at University Health in San Antonio. With over two decades of experience in essential procurement roles, he has built a career focused on transparent and reliable contracting, as well as the financial and compliance safeguards that protect healthcare organizations. At University Health, he strengthens supplier relationships and develops contracting practices that support patient welfare, fiscal responsibility, and mission-driven care.

Through this article, Román explains how seemingly standard contract language can quietly expose hospitals to financial risk, operational inflexibility, and long-term liabilities. He outlines why precise contracting, transparent expectations, balanced indemnification, and disciplined oversight of pricing and termination clauses are essential for protecting patient care, strengthening vendor relationships, and supporting mission-driven healthcare administration.

Hospitals are caught in the middle of a perfect storm of increased labor costs, dwindling supplies and inflation across virtually all types of expenses. But some of the most damaging financial risks aren’t the enemy within—they’re hidden in the fine print of vendor contracts. Standard language that appears innocuous can result in increased costs, reduced flexibility, or create liabilities that emerge years after the agreement is signed. Choosing the best offensive strategy against these new dangers is straightforward yet regimented: write precise, balanced contracts that prioritize accountability, clarity, and partnership.

Clear Expectations Create Strong, Sustainable Partnerships

Partnerships thrive when expectations are unmistakable. Every agreement we execute includes measurable benchmarks for performance, pricing, and service delivery. We conduct routine evaluations to ensure both our organization and the supplier remain aligned with those expectations. These practices create consistency, reduce the risk of misunderstandings, and make collaboration far more effective. When vendors know exactly what success looks like, the relationship becomes easier to manage and much more productive.

“Hidden costs often originate not in dramatic supply chain disruptions, but in quiet clauses buried deep in vendor contracts. When agreements are crafted with clarity, fairness, and accountability, they stop being risks— and become tools that strengthen financial stability, safeguard patients, and build true partnership.”

Fair, Balanced Indemnification Protects Everyone

Indemnification is about balance. Each party should take responsibility for the risks within its control. If our organization experiences harm due to a supplier’s error or data breach, it is reasonable for the supplier to address those consequences. But these clauses are not punitive. They safeguard both sides by clearly defining jurisdictions and expectations. When indemnification is drafted with fairness and clarity, it ensures accountability without damaging partnerships or discouraging innovation.

Guarding Against Financial Risk Through Transparency and Smart Contract Design

The healthcare landscape is constantly shifting, and prices can rise without warning. To prevent unexpected exposure, we embed price warranties in our contracts to ensure our rates remain consistent with those offered to similar organizations. We reinforce this with regular benchmarking, structured audits, and compliance reviews. This level of transparency keeps both parties aligned and reduces the chance of financial surprises.

We apply the same discipline to termination-for-convenience clauses. Poorly drafted terms can create significant financial risk; therefore, we carefully evaluate each clause to protect the organization while preserving procurement flexibility. That includes assessing subcontract responsibilities, ensuring termination does not conflict with the agreement or applicable law, and avoiding automatic renewals without review.

Most of our standard contracts allow cancellations with 30 days’ notice, provided that the cancellation is limited to covering pre-scheduled product or service costs. This approach strengthens accountability, prevents unwanted rollovers, and ensures that supply chain practices align with our mission. The result is stronger sourcing discipline, meaningful savings, and better stakeholder confidence.

Lead With Curiosity, Integrity, and an Unwavering Focus on Patients

Be inquisitive. Every invoice, contract, or exception tells a story about value gained or value lost. Strong procurement leaders look beyond the numbers to understand how their decisions shape clinical care and daily operations. Never forget that every choice we make has a significant impact on patient outcomes and the people who rely on us for safe and reliable healthcare.

Above all, stay true to your values. Patient safety, financial integrity, and transparency are non-negotiable. When those principles guide your work, contracts cease to be static documents and become active tools for enhancing healthcare delivery.

Closing Thoughts

Identify contracting as the root of responsible healthcare administration. A professionally crafted deal serves more than legal protection. It also promotes financial stewardship, accountability, and partnership. Our organization has developed a system that incorporates fairness, transparency, and diligence to mitigate the potential for adverse effects in the healthcare system. Believe that hidden expenses found in standard clauses can be detrimental to sound financing. However, using careful and transparent contracting methodology can help convert those liabilities into opportunities to enhance stability and reinforce trust across the system.