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Time for New Rigor on Vendor Contracts

May 23, 2013
by Mark Hagland
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At a time of intensifying demands on providers, healthcare IT leaders need to push vendors hard to get favorable contracting terms

Mike Archuleta is director of IT at Mt. San Rafael Hospital, a 25-bed critical-access hospital in Trinidad, a small Colorado town located near the border of New Mexico; Brian Patty, M.D. is vice president and CMIO of the four-hospital, 14-clinic HealthEast Care System in St. Paul, Minn. The two healthcare IT leaders’ organizations are vastly different in size and scope, yet they share two very important things in common: both Archuleta and Patty are incredibly busy IT leaders these days, and both of their organizations are operating in an environment in which optimizing clinical IS vendor contracts is becoming ever more-critical.

At Mt. San Rafael, Archuleta and his colleagues are in the final stages of preparing the go-live on an inpatient electronic health record (EHR) from Healthcare Management Systems (he and his team went live in January with athenahealth in their two physician clinics). Meanwhile, Patty and his colleagues are preparing for a switch from their current core inpatient EHR vendor and core outpatient EHR vendors (two different companies) to Epic Systems Corp., with the hospital go-live set for June 2014, and the clinic go-live set for December 2014.

Mike Archuleta

While Archuleta readily concedes that, with an IT staff of three including himself, managing not only the implementation of an EHR but also the contract process, is always a challenge, Patty notes that “Obviously, we’ve had to nail down our contract with Epic, and with Deloitte, our main implementational partner. Now,” he says, “it’s a matter of contracting with 20-odd third-party vendors, pertaining to our Epic implementation, most importantly our vendors for evidence-based order sets, ICD-10 and other data sets, and all sorts of smaller third-party.”

Brian Patty, M.D.


Archuleta and Patty both say they’ve been fortunate in their vendor contract processes, so far. But, say industry experts, the pressures facing healthcare IT leaders around the management of clinical IT vendor contracts, are set to accelerate in the current operating environment, for a variety of reasons.

Without a doubt, among the biggest factors right now is the mounting set of pressures related to the meaningful use process under the Health Information Technology for Economic and Clinical Health (HITECH) Act, says Steven J. Fox principal, and chair of the information Technology group, at the Washington, D.C.-based Post & Schell law firm. With providers rushing to get EHRs implemented under pressure from the HITECH Act’s requirements, things are “even more pressure-packed” than in the recent past, for providers, Fox says, which means that CIOs and other healthcare IT leaders have got to become far more rigorous in reviewing the contract terms proposed to them by EHR and other IT vendors.

Steven J. Fox

“Starting about a year ago,” Fox reports, “I noticed that in contract negotiations, because clients said it to me, ‘This has to work, because failure is not an option. And all those vendors know that I don’t have the one option that I always had, which is, if this doesn’t work out well, we’ll walk away and go with our second choice.’” In other words, vendors are starting out with a double set of advantages over CIOs and other healthcare IT executives. First, vendors have tremendous experience in contract negotiations with customers; and second, provider executives are under pressure to get EHRs and other core clinical systems implemented quickly, and the vendors know it. As a result, vendors more and more are trying to bully CIOs into signing contracts without really knowing what’s in them, Fox says.

Fox goes on to tell what he considers a very cautionary story. “I had something happen about a year and a half ago,” he says. “I won’t say who the vendor was, but it’s one of the largest in the industry. And what happened is that, after one client hospital had hired me to work on the EHR contract, the general counsel called me in to review the details of the contract. Then, the vendor called the CEO of the hospital to say, ‘If you’ve hired Steve Fox, you’ve made a mistake, because he’ll make things difficult.’ So the CEO called me up and said, ‘We haven’t met yet, but the vendor just called me to backstab you, and if they called me to warn me about you, you must be the best!’ That hasn’t happened often, just a few times in 20 years,” Fox says. “But once, it happened a second time with the same vendor, and I called him and said, let’s talk. And I sat down with him and said, ‘You’re risking a lawsuit, because there’s a tort called intentional interference with a contractual relationship. And you’re interfering here.’”