“Negotiating Electronic Health Record Technology Agreements”

By Michael J. Daray, Esq., Law Weathers, Grand Rapids, MI

Summary by Jonathan E. Beling, Cumberland School of Law, Class of 2012

The Health Information Technology for Economic and Clinical Health Act (“HITECH”) creates incentives for physicians and hospitals to adopt electronic health record (“EHR”) technology over the next several years. The incentives are in the form of Medicare payments to the physician, or alternatively through a federal matching fund which pays for a portion of the amounts that states pay to Medicaid providers. Physicians who do not timely adopt and use EHR technology will be penalized through a reduction in Medicare payments, which start at one percent in 2015 and increase one percent annually, with a cap of five percent.

There are two primary models used for the deployment of EHR software. Under the traditional licensing model, a license to use the EHR software is acquired, and the software is installed on the practice’s hardware. Although the traditional model is customizable to the physician’s practice, and has been developed over a number of years, the startup costs are significant due to hardware requirements. The alternative model is software as a service (“SaaS”), which is a subscription web-based service that hosts software on the EHR vendor’s server and can be accessed remotely by the physician. The primary benefit of SaaS is cost because the practice won’t need to purchase expensive hardware. Because all of the patients’ health information is stored on the vendor’s server, SaaS requires a reliable and fast internet connection. Furthermore, SaaS does not have the track record of the traditional model and the monthly charges for SaaS solutions can eventually surpass the traditional model’s initial cost.

Regardless which model a practice chooses to use, the practice and the vendor will enter into an agreement which will include may important terms. The agreement will likely state a license or user agreement term, or duration. A longer term is generally preferred for traditional models as renewals often require payment of renewal fees, but for the SaaS model the practice should make sure that it has the right to terminate at any time without penalty. In addition, the practice should negotiate making upfront payments in milestones rather than all at once, and also set a schedule for deployment of the system. The agreement should clearly define what data, if any, will be converted to EHR and a timeline for completion. It should also set out the practice’s rights to access it’s data upon termination of the agreement. Counsel should negotiate additional representations and warranties, such as vendor compliance with Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and meeting the requirements under HITECH. The agreement should also detail hardware requirements and state if the vendor requires a maintenance agreement.

The most critical issue in the agreement is an indemnification on behalf of the vendor. If a vendor is not willing to at least provide indemnity for claims arising out of its breach of its obligations under HIPAA, the practice should re-consider using that particular vendor. Vendors will typically refuse to remove a limitation of liability, however the practice should try to have the limitation be mutual in case of a breach by the practice. A practice should require that the vendor not be permitted to assign the agreement without the practice’s consent, and for SaaS vendors, the practice should ensure the vendor is able to provide HIPAA-compliant back-up logs.

The framework is in place for the incentive rich move to EHR technology and a practice’s investment in that technology may be one of the most significant investments it makes in its infrastructure. It may also be the riskiest and therefore important that healthcare attorneys understand and effectively negotiate the key terms of an EHR arrangement.

For more information on this topic, see Volume 22, Number 2, December 2009 of The Health Lawyer. [Members Only PDF].