Getting Your Way: Where Business Meets Legal in Health Care Technology Contracts

Legal support is an essential component of a successful strategy for health care technology contracts. Having a good IT attorney who understands the health care business is essential for a successful transaction. Good attorneys on each side help the parties negotiate and document rights and obligations for a win-win transaction.

Information technology has some unique considerations that not every business lawyer understands. If your attorney does not understand the technology issues, he or she will be at a distinct disadvantage when negotiating with the technology vendor’s attorney. Involve the attorney as early in the process as possible, e.g., at the RFP or RFQ, to maximize the value the attorney provides.

Critical Contract Issues for Health Care Technology 

1. Deliverables. Make sure there is a detailed description of what you are getting from vendor. The contract should fully describe the software, hardware, and services, including professional services, maintenance, support, and training, that you are acquiring. Do not assume it is covered. If it is not stated, you may later find you are not getting what you thought you were. Where applicable, include system specifications, particularly functional specifications, for the deliverables.
2. License. Make sure the scope of rights is spelled out. Identify what you need to be able to do with the technology and make sure the license covers it. For example, include any necessary affiliates, physician practice groups, or others under the license; and ensure that the user limitations allow you to use the system as fully as necessary.
3. Implementation Plan. Make sure the implementation plan is clear and detailed with specific milestones. Payments should be tied to certain milestones to induce the vendor to keep the implementation on schedule.
4. Acceptance Testing. Make sure you incorporate into the contract an acceptance testing process to be conducted by your personnel. This is a critical element of the implementation. Cover both component testing and full system testing. The testing should measure the components and the system against specifications set out in the deliverables description. The process should allow for re-testing once any deficiencies are corrected by the vendor. Final payment should not be triggered until all the components and the system have passed testing and are accepted by you.
5. Warranty. Make sure the warranties are tied to the agreed specifications, not just vendor’s standard published specifications, and are for a sufficient length of time. The warranty period should not begin until the system has been accepted. Ensure that there is not only a software and hardware warranty, but also a services warranty.
6. Service Level Agreement. Make sure there is an appropriate service level agreement (SLA). An SLA is particularly important for Web-based systems and Software-as-a-Service arrangements. A 99% uptime guarantee is typical. Even 99.99% is becoming more common now. The SLA should specify penalties if the vendor misses the uptime requirements. Penalties are usually structured as credits against future fees, with serious uptime deficiencies allowing for termination of the contract.
7. Confidentiality. If the vendor will have access to any of your confidential information or patient data, make sure the contract includes provisions that require the vendor to maintain confidentiality of this information, including meeting the obligations under HIPAA. Due to the nature of the services provided by some vendors, they may be deemed a “business associate” under HIPPA and may need to sign your Business Associate Agreement.
8. Intellectual Property Ownership. Make sure you protect any intellectual property rights you might have. Derivative works of a vendor’s technology are typically owned by the vendor. However, if the creative contributions of your IT or medical staff are significant or if you invest a significant amount financially to the development, you may want to insist on joint ownership or on restricting the vendor from using the new development with your competitors. You may also want to consider having the vendor pay you a royalty or give you a fee credit in exchange for rights to use the development.
9. Risk Allocation. Make sure that the allocation of risks under the contract is reasonable given the fees you are paying and the liability exposure you have for the technology causing harm either to your facility’s operations or to third parties, particularly if the technology is used for patient care. Pay particular attention to the indemnification, limitations of liability, and insurance provisions. Generally, you should insist that the vendor carry errors & omissions insurance coverage, in addition to general liability coverage.