A successful healthcare information technology contract requires either luck or discipline, says Lawrence Schultis, a partner in the technology and outsourcing practice group of Shaw Pittman. And the consensus among technology-transaction experts is that it's best to rely on discipline and strategy to avoid dashed expectations, broken prom-ises and flat-out system failures.
In other words, getting ready to buy your technology is just as important as what you buy.
Decisions about IT purchases are driven by a host of considerations: quality, exposure to liability, desire to reduce costs, improvement of physician relations and competition.
But organizations all too frequently neglect the first crucial step of investing resources in understanding their own requirements and internal procedures before plunging into the minutiae of contracting concerns, says neurologist Andrew Barbash, M.D., mobile health program director for the Medical Records Institute in Boston.
"There is a need for the entity that is trying to sign a contract with another entity to have invested upfront in its own business processes and governance processes to better identify itself as a client and avoid pitfalls down the road," Barbash says.
For example, he says having lawyers involved in reviewing potential agreements, even in advance of choosing a vendor, happens infrequently.
"Some of the reasons people run into trouble are that they come into the contracting process without having known the parameters of what they need," Barbash says.
He notes that contract negotiation commonly is handed off to the IT department in a sequential course of decisions when more often it should be a multistakeholder, parallel business process involving the board, administration and clinical staff.
Presuming that an organization already has performed a rigorous self-evaluation, lawyers and consultants say there remain other key issues-and potential pitfalls: software licensing, outsourcing arrangements, change management, joint ventures, performance issues and termination rights.
Some industry IT pros gathered at a contracting workshop March 12 hosted by Shaw Pittman at the law firm's McLean, Va., offices. The firm's John Eichenberger said there are two key tools for helping align the transaction with an organization's objectives.
One is a request for proposals that details the required services, products and performance, and the other is a term sheet that includes how a vendor will meet those requirements and how much it will charge to do so.
"Closing down the competitive process too early is a common problem," Eichenberger says. All important contractual issues, whether technical, financial, legal or business-related, should be addressed during negotiations and before supplier selection, he says.
In software licensing, the biggest "gotchas" are scope of use, discontinuation of the license and termination rights, says Shaw Pittman partner Schultis, who concentrates on transactions involving software licensing, systems development, technology distribution, joint ventures and strategic alliances.
To avoid these problems, contracts should require concrete dates for delivery and other milestones or accomplishments. "Some vendors will say, 'This is a partnership,' like it's a big warm, fuzzy hug," Schultis says. "That's nonsense."
Organizations need to reserve leverage in order to get things fixed later, and it is good when a vendor asks for dates from the buyer, too, Schultis says.
"Nothing gets done unless there's a date tied to it," he says. "Surrendering leverage will always cost time."
Addressing strategic partnerships and joint ventures, Shaw Pittman partner Tom Knox says, "Most innovation occurs where two or more entities get together with different skills and resources, but you have to make sure you go into these relationships with eyes wide open."
He says contract terms should include exclusivity and control mechanisms, which can be as simple as a board seat or as complex as having a role in product development.
In addition, entities should establish the duration of the partnership and an exit strategy, profit- and loss-sharing, and the scope of influence over business decisions.
In all types of IT contracts, determining upfront who is responsible for resolving performance problems is critical, says Shaw Pittman counsel Mark Lieberman, drawing on his experience as vice president and general counsel to the Albert Einstein Health Care Network in Philadelphia.
The implications of technical errors or failures on patient care and data can be too great not to stipulate when immediate remediation by the vendor is required, Lieberman says. Hospitals and other providers do have leverage in resolving conflicts, such as correctly using threats of bad press and influencing future sales with information about how the vendor does or does not fix problems.
When bad goes to worse, a contractual right to terminate, which Schultis calls "the capital punishment of the economic world," should provide for post-termination assistance by the vendor and injunctive relief if the vendor does not comply.
The basic sandbox rules should be established in the beginning when everyone is still in a good mood, Schultis says, and usually, termination is a better threat than it is a practice.
"Ideally, it's a tool for getting where you're going, not for giving up on where you're going," Schultis says.
Elizabeth Thompson Beckley is a freelance writer based in Takoma Park, Md. Reach her at [email protected].
A disciplined process is one in which you:
Source: Shaw Pittman