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General information for supply and contracting staff, not legal or medical advice. Have counsel review any agreement before it is signed.
Short answer
A medical supply consignment agreement is a written contract under which a supplier places goods at a facility while the supplier keeps ownership, and the facility is billed when items are used. Whether a deal legally counts as a consignment depends on its facts, not its title. This page gives a clause-by-clause review frame, with one hospital’s published policy as a worked example.
Definition and scope
The operations of consignment stock (par levels, counts, replenishment) are covered in consignment medical supplies. This page is about the agreement itself as a document. For how pricing is expressed in these deals, see consignment inventory pricing.
Is it a consignment at all? The uniform commercial code test
The Uniform Commercial Code, section 9-102(a)(20), defines a consignment as a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and four conditions hold. Checked 2026-11-01 against the uniform text (state enactments can differ, so check the enacted version):
- The merchant deals in goods of that kind under a name other than the deliverer’s, is not an auctioneer, and is not generally known by its creditors to be substantially engaged in selling goods of others.
- The aggregate value of the goods delivered is $1,000 or more at the time of delivery.
- The goods are not consumer goods immediately before delivery.
- The transaction does not create a security interest that secures an obligation.
Because the definition applies regardless of form, calling a contract a “consignment agreement” does not decide the question, and a contract that avoids the word may still meet the definition. Which side of the line a deal falls on is a question for counsel in the relevant state.
How the agreement is used in practice: a clause review table
The table below uses one published institutional policy as an example: the University of Toledo Medical Center’s “Supplier owned inventory (consignment)” rule, Ohio Administrative Code 3364-40-06, effective 10/22/2018 (checked 2026-11-01). It is one institution’s policy, not an industry standard, and other facilities will differ.
| Clause topic | What the Ohio policy example says |
|---|---|
| Initial term | One year from the signing date. |
| Termination | Without cause, on thirty days advance written notice by either party. |
| Price | Pricing should be held firm for a minimum period of at least one year. |
| Inventory review | A quarterly inventory review is to be conducted and documented. |
| Returns | The medical center can, at any time, return unused or expired items. |
| Expired product | Under no circumstances will the center pay for supplier-owned, expired product. |
| Replacement | Replacement is by purchase order upon use; the initial shipment goes under a zero-cost purchase order. |
| Liability | The center will not accept liability for products or equipment unless specifically stated and agreed. |
Related concepts
Consignment is one of several supply arrangements; the related pages compare it with vendor-managed inventory. See consignment inventory vs vendor-managed inventory and vendor-managed inventory (VMI).
Where it matters for supply decisions
Federal Anti-Kickback rules give one concrete reason to treat the paperwork carefully. The personal services and management contracts safe harbor, 42 CFR 1001.952(d)(1) (eCFR, checked 2026-11-01), lists these conditions: the agreement is set out in writing and signed by the parties; its term is not less than 1 year; the methodology for compensation is set in advance; and compensation is consistent with fair market value in arm’s-length transactions. That safe harbor covers services and management arrangements. It does not mean a supplier consignment deal automatically fits it, and safe harbors are voluntary. Ask counsel which provision, if any, applies. For context on supply operations, see hospital supply chain and inventory management in healthcare.
Common misunderstandings
- “The title decides it.” The UCC definition applies regardless of the transaction’s form.
- “One institution’s terms are the market norm.” The table above is a single public policy.
- “A safe harbor makes the deal compliant.” The 1001.952(d)(1) conditions apply to the arrangements that provision covers; whether any provision fits a given deal is a legal question.
FAQ
What is a medical supply consignment agreement?
A written contract in which a supplier delivers goods to a facility as supplier-owned inventory. Terms such as duration, termination, returns and counts are set in the document.
Does the UCC apply to every consignment?
Section 9-102(a)(20) sets four conditions, including a $1,000 aggregate value at delivery and that the goods are not consumer goods. A deal that fails them is not a UCC consignment under that definition. Check the version your state enacted.
Does the agreement need a minimum one-year term?
A one-year minimum term is a condition of the 42 CFR 1001.952(d)(1) safe harbor, which covers personal services and management contracts; whether it applies to a given deal is for counsel. The Ohio example uses a one-year initial term with 30-day termination without cause.
Sources
- Uniform Commercial Code 9-102, Cornell Legal Information Institute, law.cornell.edu/ucc/9/9-102, checked 2026-11-01.
- 42 CFR 1001.952, eCFR, ecfr.gov, checked 2026-11-01.
- Ohio Admin. Code 3364-40-06 (University of Toledo Medical Center supplier owned inventory policy), law.cornell.edu, checked 2026-11-01.
