The Most Important Question to Ask Your VMS/MSP Provider

It's becoming all too common of a story. VMS technology companies seem to be folding left and right and when they do, they go out holding millions of unpaid dollars to staffing suppliers.

First there was Chimes.  In early 2008, Chimes declared bankruptcy and went out owing millions of dollars to staffing suppliers. To make matters worse, a year or so later their legal trustee attempted to reclaim some of the money paid out to suppliers after their declaration of bankruptcy, claiming this money should have been frozen at the date of declaration.

Earlier this year, another small VMS company in the healthcare staffing industry, Vendtegrity, went out of business. At the time, Vendtegrity had only 4 clients so the impact was minimal. However, to the suppliers owed money, I'm sure it didn't feel minimal.

Last week, on behalf of several heatlchare staffing suppliers, the National Association of Travel Healthcare Organizations (NATHO) sent a letter to Symbio Solutions because of their inability to distribute funds owed to these companies. The Staffing Industry Analysts posted more details about the bad payment situation between Symbio and NATHO.

In the letter, NATHO states "In the past several years, several vendor management providers have defaulted on their obligations to their staffing agencies. When this occurs it creates financial hardships for those agencies who have provided the staffing services to facility clients in good faith, and also puts such clients in the position of having to possibly make restitution to the agencies on behalf of the defaulted vendor management organization even though the facility may have already made payments."

NATHO hit the nail on the head here. When a staffing supplier works through a VMS provider they do so in good faith. It's difficult enough for many of these suppliers to deal with the transition of now servicing their client through a VMS. Failing to distribute the funds these companies have earned places an extraordinary burden on the hospital, the suppliers, other VMS providers and the industry as a whole.

These failures hurt the reputation of VMS technology companies as a whole. However, it's important to note that not all VMS companies are the same. Before you engage with a VMS technology provider there are several things you can do to ensure you don't end up in this same situation. Here are the first 3 things you should check with every VMS/MSP provider you work with:

Escrow Account. Last week at the Healthcare Staffing Summit I facilitated several conversations at the VMS/MSP round table sessions. One thing many suppliers wanted to know was what to ask when they started to engage with a VMS company. I told them the first and most important question every supplier should ask is "how do you handle my money?" The key words being "my [your] money."

Typically, when a hospital works with a VMS/MSP provider, the hospital pays the money they owe their staffing suppliers directly to the VMS/MSP provider. From there, the VMS/MSP provider has the obligation of paying all of the suppliers owed money for services in the transaction. One of the main problems is that many of these VMS/MSP companies count this money as their top line revenue and the money they pay to their suppliers simply as cost of sales.

This is a huge red flag. This money is not the money of the VMS/MSP and at no time should they consider it their revenue. In doing so, they will take the opportunity to use the money as they see fit (investing it, paying other obligations, backing it with factoring sources, etc.). This is what is causing all the financial problems for these VMS companies.

If a VMS company is handling the financial transactions between a hospital and their staffing suppliers they must use some form of an escrow account in order to secure and ensure these transactions. Simply put - if the VMS/MSP provider you're working with doesn't have an escrow account your money is at risk. Even though I don't agree with everything in this document, the American Staffing Association (ASA) put out a letter of best practices for VMS/MSP providers (.PDF) that lists several things you should look for when working with a VMS/MSP provider.

Established presence. Another complaint I heard from healthcare staffing suppliers at the VMS/MSP round table last week was about the amount of (and the amount of unknown) VMS providers. Several companies try to provide VMS services but end up causing more harm than good. As a supplier, the burden of working with multiple VMS providers is significant, especially if the provider only manages one or a few of your clients.

If these providers are new to the scene and aren't offering any improvements on the current services out there the best thing you can do is educate your clients. There are several, well established companies that provide great VMS/MSP services. Find the ones you like to work with (those that protect your money and have an established presence) and educate your clients about these companies. Most often, hospitals don't know what their options are and will begin working with the first company that contacts them, even if this company has very few clients and lacks necessities such as an escrow account. Therefore, it's in your best interest to have your client select a VMS company you are more comfortable working with. One you know that won't end up insolvent and owing you money.

Reputation. Ask around. Ask your competitors. Check the web. Read staffing blogs and forums. Ask the VMS company for references and specifics (documentation) about how they handle your money and deal with other financial, support, and service related issues. If you don't like the answers it might be a major warning.

VMS/MSP providers have a significant obligation to their clients, their staffing partners and the industry as a whole. Mismanagement of financial transactions has so far been the #1 issue with these companies. Sadly, their primary focus should be to ensure the finances they handle are done so properly and securely.

If there is any silver lining in this situation, hopefully it will be that the VMS/MSP providers left standing will improve their services and ensure more secure financial transactions, improving the service of VMS/MSP for the industry as a whole.

Comments

[Paula]

"This money is not the money of the VMS/MSP and at no time should they consider it their revenue. In doing so, they will take the opportunity to use the money as they see fit (investing it, paying other obligations, backing it with factoring sources, etc.). This is what is causing all the financial problems for these VMS companies."

Are you saying that Vendtegrity is one of the businesses that handled money in this unwise way? Is there a place where we can find more specific information on how it conducted business and what the problem was there?