When negotiating health IT contracts, try to get extra warranties

Don't just skim the small-print legalese in your health IT contracts: Negotiate for more warranties and dig deep into your vendor's financial background.

ORLANDO, Fla. -- "It's the economy, stupid!" was one line that got Bill Clinton elected president in 1992. The sentiment also applies when it comes to negotiating health IT contracts, said attorney Diana McKenzie in a presentation at HIMSS 2011: The economic climate dictates how many extra warranties (beyond boilerplate vendor agreements) hospital CIOs can wrangle out of hardware and software vendors. The worse the economy, the more...

it's a buyer's market -- and the better the terms.

McKenzie, who negotiates health IT contracts in her position as partner and chair of the Information Technology and Outsourcing Practice Group at the Savannah, Ga., law firm of Hunter, Maclean, Exley & Dunn PC, said that in the economic downturns of the early 1990s, after 2001, and again in the last recession, contracts the firm negotiated could carry as many as 50 hospital-requested warranties, "if they wanted them."

In contrast, during the peak of the Web boom in 1999, McKenzie said, contracts her firm negotiated carried as few as two warranties beyond what the vendor offered in its boilerplate. Right now, with the economy seemingly in an upturn, her firm is seeing an average of 16 or fewer negotiated warranties for a typical agreement, down from 35 in early 2009.

McKenzie's main points? Even in the best of times, don't accept the boilerplate purchasing contract the vendor produces at the sale of a health IT product. Customize it to fit your facility's needs -- and to protect yourself from potential hassles down the road. Above all, as in many negotiations, ask for more than you think you'll end up getting. In contract negotiations, you might not get all you ask for, but aiming high could lead to unexpected discoveries -- for example, asking for guarantees that the company will continue to develop an application for the next few years might reveal its plan to sunset, or discontinue, the software before the contract term is up.

General warranties for health IT contracts

Warranties CIOs can order "off the menu," as McKenzie put it, of the standard vendor boilerplate can cover "global" matters (general aspects of the deal), items specific to hardware and software, or items specific to health care itself (such as compliance with Centers for Medicare & Medicaid Services rules, Joint Commission accreditation standards, or such regulations as the Health Insurance Portability and Accountability Act).

In all, McKenzie listed 43 warranties she's negotiated into actual contracts. Large hospitals negotiating seven- and eight-figure deals will have more success in getting vendors to add extra warranties to contracts, but vendors sometimes will concede many of the warranties to smaller facilities too, she said. Here are some of the warranties vendors commonly might leave out of their standard contracts that can be there for the asking:

  • Software updates: Ask the vendor to promise that all the warranties in a contract will apply to updates, as well as to the original software purchased.
  • Update frequency: How often will the vendor issue updates that address bug fixes and other known issues? At least twice a year is a good start.
  • Availability: Hospitals who want the "five nines" IT-uptime gold standard of 99.999% will have to pay for it -- as much as 30% extra per nine. But it doesn't hurt to ask.
  • Features: Don't you just hate it when a software vendor eliminates a feature that isn't working right -- instead of fixing it -- especially when it's key to your clinical workflow? Ask for a warranty that states, "Any update to the software, hardware or documentation will improve, and will not reduce or eliminate, any function, feature or option present in such product at the time of the update."
  • '80% similar product' clauses and sunsetting: You're investing in the vendor's product. How long you ask them to develop, maintain and support it is your choice, but McKenzie has gotten a 10-year period written into contracts for her clients. Vendors sometimes release what amounts to a major upgrade and rename the application, charging new license fees. Contracts with "80% similar" clauses require the vendor to provide free copies of this allegedly "new" software if it contains mostly the same features.
  • No data loss: In a health care environment, data loss can affect care, and can even threaten lives. No vendor is likely to agree to a straight warranty against its software altering or losing patient data, but they sometimes will agree to less stringent warranties, provided you follow certain rules the vendor sets -- such as frequent backups.
  • Virtualization: Will the vendor support its software in a virtualized-server environment? Do you plan to virtualize? Do you want to pay extra fees for the vendor to provide a virtualization-friendly version? If not, bake it into the contract.

Another sticky issue is the promises the salespeople make about compatibility -- or anything else they need to say to close the sale. Get down in writing the promises that are important to your facility, and hardwire them into the contract.

[Y]ou really should do just a little bit of research before you sign, to make sure there aren't any surprises you wish you would have known about.

Diana McKenzie, Partner and Chair, Information Technology and Outsourcing Practice Group, Hunter, Maclean, Exley & Dunn PC

"Because vendors have a very difficult time controlling what [sales] folks in the field are doing, they exclude everything that was said in conversation, everything that was written before you got your contract signed -- unless you affirmatively put them in," McKenzie said. "There's not a lot of vendors who are going to be willing to put everything in, but you ought to be able to come up with some emails, or some product demos -- or some particular things that you saw happen -- that are important to you. Those should go into the contract, and you can attach them."

Health care-specific warranties for health IT contracts

Hospitals have some specific legal worries they can help address in vendor warranties, McKenzie said. Among the clauses she's written into contracts based on real-life problems hospitals have encountered:

  • Joint Commission compliance: The hospital accreditor holds the keys to Medicare reimbursement, and its standards are starting to affect IT systems. Ask that the vendor's software, at the very least, won't prevent compliance.
  • The self-explanatory disclaimer: "Vendor complies with all applicable laws, regulations, rules, mandates, and requirements of the U.S. government and any applicable state and local governments regarding health care, including HIPAA, HITECH and [the American Recovery and Reinvestment Act]."
  • No sanctioned providers: In the down economic cycle of the last few years, physicians or other credentialed staffers were being sanctioned by their respective credentialing bodies. In need of income, they went to work for software companies, which didn't bother to check the status of their credentials. In some cases, having such personnel on your site can endanger your Medicare reimbursement status. Make the vendor check to make sure its staffers are credentialed periodically and are not "subject to debarment under any federal healthcare program, including Medicare or Medicaid."
  • Stark laws: For hospitals planning to support local physicians with electronic health record (EHR) software, require the vendor to comply with anti-kickback laws, just as you will have to.
  • Meaningful use: Many EHR vendors offer meaningful use guarantees. Spell out just what they are warranting, and what they'll do if they're in breach of this guarantee.
  • Certification Commission for Health Information Technology certification. Ask the vendor to warrant that it will maintain CCHIT certification in future releases, if that is a priority for your facility (and it probably is).

Miscellaneous warranties for health IT contracts

But wait, there's more: Besides asking for personnel warranties -- this becomes especially important for children's health care facilities, which want to make sure no registered sex offenders have access to the premises or to patient data -- hospitals should consider asking for other warranties -- such as the playing-well-in-the-sandbox clause, in which a vendor pledges that it "will fully cooperate with, and not interfere with, customer's other vendors."

And then there's this: Have the vendor warrant that it isn't going to restate past financial earnings, isn't about to default on any loans, and isn't about to be de-listed from a stock exchange. The vendor should also warrant that it isn't involved in intellectual property (IP) litigation. There's no guarantee a vendor will sign off on such clauses, but just asking these questions in the contract negotiations can turn up some details that might make you think twice about entering into a contract agreement with a particular company.

"My best recommendation on this is not just to get a warranty, but to have your lawyer do what is called a business intelligence report when you're about to sign the contract," which amounts to sort of a financial background check, McKenzie said.

"I can tell you just in the last six to eight months when we've done these reports, we've found some amazing things -- IP litigations; a vendor had been de-listed from a stock exchange; some of the executives were about to spend time in Club Fed -- there are lots and lots of things that come up, and you really should do just a little bit of research before you sign, to make sure there aren't any surprises you wish you would have known about. But a warranty's also a good way to start because sometimes they'll just 'fess up if you put those warranties in," McKenzie said.

Let us know what you think about the story; email Don Fluckinger, Features Writer.

This was first published in February 2011

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