Legal assistance, planning crucial for IT outsourcing agreements

DALLAS - In line with a healthcare industry trend towards information technology integration, many facilities are continuing to realize the benefits of outsourcing, citing advantages such as long-term cost savings and an ability to concentrate on improving healthcare quality. Historically, however, health providers have tended to minimize negotiations and ultimately acquiesce to vendor-friendly terms.

In a talk Monday at the Healthcare Information and Management Systems Society (HIMSS) meeting, Diana J. P. McKenzie, chair of the Information Technology Group at Chicago-based law firm Neal, Gerber & Eisenberg, offered suggestions on drafting and negotiating outsourcing agreements.

McKenzie suggested that early involvement of legal counsel familiar in healthcare and information management would ultimately yield savings of both time and money. McKenzie noted a study of her firm’s clients showing that those who engaged legal assistance early in the request for proposal (RFP) process "wound up not only having better contracts, but paying out less money over time.”

Many organizations fail to adequately identify their ultimate goals, and ultimately fall short in managing the outsourcing process, she said. Clearly setting forth the details surrounding the outsourcing relationship, such as what activities or functions are to be outsourced, the impact on vendor and customer personnel, and transition strategies (ingoing and outgoing), will set the foundation for a successful outsourcing arrangement, McKenzie said.

Additionally, because of the unique nature of regulations impacting healthcare, it's extremely important to take both state and federal regulatory issues into account, not only with respect to the information subject to the outsourced services, but also concerning matters such as personnel compensation and benefits, she said.

When preparing RFPs, due diligence on possible vendor outsource organizations should be performed, taking into account overall corporate financial stability, personnel availability and consistency, and pending litigation involving service or intellectual property issues, McKenzie said. Also, including proposed terms and conditions of the agreement in the initial RFP will introduce the vendors to the organization’s contracting approach, and may draw out potential issues for negotiation early in the process.

Negotiation specifics should be set forth early in the process. Predetermining negotiation session frequencies, times, and lengths will preclude the possibility of delays in the process.

Starting negotiation sessions with “deal breakers” would ultimately streamline and facilitate focused discussions, she said. Projecting realistic, rather than ideal, deadlines for responses is another beneficial strategy and will help in retaining appropriate control over the negotiations.

McKenzie listed several key contractual considerations aimed at protecting the interests of the healthcare provider organization. Organizations should consider which services, precisely, are positioned for outsourcing. And the organization should ensure that the contract provisions allow for possible changes in workload, volume, and technological advances.

These modifications may include either increased or decreased need for services. Scope-control provisions are also necessary to define the parameters and timing of services to be performed. Organizations that end up paying more for services they initially thought were included “is by far and away the most common complaint in outsourcing contracts,” she said.

Of specific concern to healthcare, regulatory restrictions on data use and maintenance must be addressed in outsourcing agreements. McKenzie stressed that boilerplate business-associate agreements generally do not meet the needs of most organizations involved in outsourcing arrangements.

Specific attention to a vendor's data management practices and security measures should be more detailed than the typical business-associate relationship, she said. Provider organizations should also be very careful to consider the ramifications surrounding work product developed over the duration of the outsourcing agreement.

Following the events of 9/11, force majeure provisions have become much more complex, and require greater attention. Historically, these provisions accounted for “acts of God,” and similar catastrophic events. McKenzie noted the trend toward including circumstances of terrorism and crime, allowing for termination in the event supplies or services are unobtainable.

McKenzie also suggested arbitration and mediation as possible alternatives to dispute resolution, provided that the details are specifically and carefully set forth in the agreement. Additionally, agreements should include provisions to ensure continued service or performance over the course of any resolution proceedings.

Provider organizations seeking to benefit from outsourcing IT services must take into account the cost of ensuring a successful negotiation, she said. As outsourcing becomes more prevalent, the issues surrounding the contractual relationships are bound to become more intricate.

Those with regulatory, intellectual property, and information technology expertise are best equipped to handle these types of agreements. McKenzie emphasized the importance of seeking input from qualified counsel, recognizing that legal involvement could be the difference between a successful outsourcing arrangement and one resulting in added expense, and perhaps litigation.

By Kris Knight contributing writer
February 15, 2005

Related Reading

A case for outsourcing practice management, October 28, 2004

Getting to PACS: New models level the playing field, September 27, 2004

PACS procurement: Three starting points for success, August 17, 2004

Professional services help facilities with data-storage demands, July 28, 2004

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