Don't just sign whatever the EMR vendor provides

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Jan. 14, 2008.

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By the time a vendor presents your practice with a contract for signature, you have already invested a significant amount of time sorting through the process of acquiring an electronic medical records system.

But while you might be itching to sign a deal after 18 months to two years of talking to vendors and testing out systems, don't rush putting your name on paper. The EMR system will have a significant impact on your practice, and an ill-informed decision could bind you to undesirable terms and conditions for years to come -- or a huge financial loss when you try to dump a system that turns out not to work for your practice.

So before you sign that agreement, there is some information that you and others in your practice need to know.

In order to purchase an EMR, the vendor will require your practice to enter into a licensing agreement. The agreement will likely be the vendor's standard licensing agreement with slight modifications to fit your practice's needs.

Please keep in mind that the vendor has drafted the agreement to protect itself, not your practice. Some contracts are indeed nonnegotiable -- and you might want to stay away from the companies offering those. But many licensing agreements are negotiable. Remember, the vendor wants your business and should accommodate your practice by tailoring the agreement to your reasonable specifications.

When analyzing an EMR licensing agreement, there are four main considerations: What is the practice purchasing? What are the respective duties of the vendor and the practice? What liabilities is the vendor disclaiming? And finally, how can the practice get out of the contract?

While answers to these questions may appear throughout the agreement, there are four common provisions that address them. What the practice is purchasing is covered in the scope of the license. The responsibilities of the vendor and the practice are covered in support duties. Vendor liabilities are covered in warranty and liability disclaimers. How you can get out of the contract is covered in termination.

The scope-of-the-license provision typically addresses issues such as the number of units on which the software can be installed, the number of people who can use the software, and the number of physical locations where you can install the software. Frequently, the broader the scope of the license, the higher the cost of the software. Therefore, it is imperative to determine your practice's individual needs and relay that information to the vendor so that it might personalize the system and the supporting licensing agreement.

In licensing agreements, there are three commonly used price-based approaches for valuing the software. First, licenses may be priced on a per-computer basis. This approach is best used for a medical practice that expects to have a few computers with EMR accessibility but permit access by multiple users. But if the practice plans on having only a few users but a large number of computers installed with the software, then the per-user price approach is more economical.

A license covering an entire physical location will benefit larger practices with numerous users and multiple computers, because the site license covers an entire building or office location and is not evaluated based on the number of users or computers with EMR accessibility. A site license might be more expensive than the other options.

The support duties provision is one of the most important aspects of the licensing agreement. This provision addresses the role the vendor will play and the amount of time the vendor will commit to implementing the EMR system in your practice. Vendors often provide support by training the practice's personnel, offering telephone and in-person technical support and supplying software patches and updates. Payment for such support services varies by vendor, but it is usually offered for a monthly fee or included in the overall contract price.

While the licensing agreement describes the support provided by the vendor, the agreement might also impose operational and maintenance requirements on the practice. Such requirements could include that the software be installed on a computer stored in a climate-controlled room, or that the computer be used solely for the EMR, or that all software patches and updates provided by the vendor be installed by the practice. While these requirements might not seem onerous, satisfying them may require some changes in your practice's existing infrastructure.

The provisions relating to disclaimers of warranties and liabilities are typically difficult to negotiate and are of critical importance to understand. Warranty and liability disclaimers limit the vendor's liability and the damages available to the practice in the event that the vendor fails to fulfill a contact requirement, or if the software malfunctions.

The scope of the limitation of liability will have a material effect on the pursuit and ultimate success of obtaining compensatory payments from the vendor if, for example, the software malfunctions and practice profits are lost, or worse, if a patient is injured because of such a malfunction.

The termination provision is of critical importance in the licensing agreement because it details ways the vendor and the practice can get out of the contract. A termination clause might permit either or both parties to terminate without cause. This means that either party may terminate the agreement for any reason by providing notice (typically in writing) to the other party within a stated time. Other termination clauses will only permit termination with cause, meaning there has been a breach of the agreement. If the contract does not provide grounds for which the practice may terminate the agreement, it is essential that specific language be added.

Typically, EMR licensing agreements have lengthy terms, spanning from 10 years to lifetime. If the contract is to terminate in 10 years, be sure you know what happens thereafter. Some EMR agreements might require that you return the software after the contract period terminates. If the software must be returned, be sure that the agreement provides for a way to retrieve the information stored in the system.

In addition, it is highly advisable that the agreement contain a clause stating that any and all data created through the EMR are owned exclusively by the practice. This clause will help avoid a potential information ownership problem in the future.

Also be sure to consider the possibility that the vendor could go out of business before your practice does and how that could affect your patients' records. A possible solution to this concern is to require that the vendor put its source code in escrow. The agreement should explain the circumstances under which you can obtain access to the source code.

Make sure you review and understand the terms and conditions of the licensing agreement prior to signing to ensure that the contract suits your practice's particular needs.

At a recent convention, an EMR vendor representative disclosed to me that in his experience, once a practice decided to purchase a system, the practice rarely questioned or negotiated the licensing agreement.

The licensing agreement you sign will impact your practice for years to come.

It is therefore essential that the agreement be tailored to your current needs and that it also can grow with your practice.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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