Negotiating Health IT Contracts: 10 Tips

You likely get notifications from Apple or another consumer tech company that their terms and conditions have changed. You can either read nearly two dozen pages of legal language or simply click “I agree” and move on with your day. Most of us choose the latter option.

However, that is probably the worst option when it comes to the contracts your practice makes with its health IT vendors, according to attorney Steven J. Fox, Esq., who represents hospitals and health systems in contract negotiations. Fox provided insight on negotiating health IT contracts during a session at this year’s Health Information and Management Systems Society (HIMSS) conference in Las Vegas.

Since the products you eventually agree on are ones you’ll likely use for close to a decade or even longer, Fox said that you can be a tough negotiator, but that you want to be sure that the end result is one mutually agreed upon for a long-term professional relationship.

“You want to get the best deal, but also one that is a win-win for both parties, so you and the vendor can live with it,” Fox said.

Fox offered attendees several tips for getting to this agreement, including:

1. Assemble the “right” team members for a successful contract negotiation.
There are negotiators and then there are non-negotiators.  “What you want on your team are those who know how to negotiate, are not afraid to and like to,” he said. Fox noted that you don’t want those who don’t understand negotiations are a process and involve reviewing details multiple times and might get frustrated and accept language simply to speed up the process.

2. Have a solid foundation.
Fox noted most of the “spectacular failures” he has seen with big vendors and big hospitals and health systems, were due to the organizations lacking solid ground. Important elements here are having organizational consensus involving key stakeholders, recognizing your organization’s capabilities, and understanding the limits of the technology you are acquiring.

3. Know your budget … but don’t share with the vendor.
“The surest way to get a high priced contract is when the vendor asks your budget, that it is amazingly priced within a few dollars of that amount,” he said. “Or you say your board has approved the pricing so let’s start negotiating.  No, you are starting down from a pre-approved price [and the vendor now knows that].”

4. Be prepared to walk away – really.
The only true leverage practices have when they’ve selected the technology they feel is best for them is to be willing to walk away, and mean it. “You must make it clear … [you] will walk away and go to plan B,” he said.  “We’ve had cases that there are no plan B and the vendor knows it. That might be because there are no good second choices [for your specific situation] or the vendor is in so deep with that hospital, they realize there is truly no plan B.”

5. Read the definitions in the contract.
To truly know what you are agreeing to, Fox said, understand who the “customer” is, who are the “affiliates” that may also use the product, and be sure those definitions meet the intent of what you are negotiating.
 

6. Beware ‘unusual limitations’ on licensing software.
One such example is agreeing to the use of a product per the number of computers the software is on versus the number of actual users.  If, by default, you put the software on all practice computers as part of prepping your staff machines, this can be a costly mistake if your practice has 50 employees, but only two use the software, for example.

7. Tie payments to milestones.
Don’t tie payments to dates or timelines, Fox said, as vendors love to collect 50 percent upon the finalization of the contract and the rest among implementation – which is likely the next day.  Instead, you may consider 20 percent due upon contract execution, 25 percent due upon installation, 25 percent due upon “first productive use” of the product, and the final 30 percent due upon acceptance.

8. Keep your head out of the ‘cloud.’
Yes, cloud systems are a hot topic and very appealing, Fox noted, with no infrastructure needed in your practice. However, just because your data doesn’t live on your hardware, this doesn’t mean it isn’t on any hardware.  Practices need to consider the dangers that could harm that system, from inclement weather, a failed recovery system, and other details. Fox advises checking vendor references, and not just those provided by your health IT vendor.

9. Protect ‘your’ data.
“All vendors want to use your data. And even if it is de-identified, think about it,” Fox said. “What do you get out of it? If there is a breach and you get sued, they should indemnify [protect] you.  When they hear that, vendors say ‘we don’t need your data that badly.’ They are making millions and billions of dollars … and need to be responsible.”

10. Build in dispute resolution / termination into the contract.
Want to avoid a court case?  Well then build in escalation provisions to resolve most disputes between you and your vendor, Fox said. Consider an alternative dispute resolution, such as mediation or arbitration and be sure that should a situation arise, the “customer” (you) can use the software during this period.