Contracting for Health Information Technology

1. Contracting for Health Information Technology Legal and Financial Considerations Southwest Virginia Technology Council Medical Summit August 11, 2008 Southwest Virginia Higher Education Center Abingdon, Virginia

2. Functional Requirements Start negotiations with your RFP What you are buying Software licenses Hardware Where to put it all? What you are buying Maintenance & Support Training Warranties Liabilities & Insurance Termination & Dispute Resolution Implementation Timeline Statement of Work Vendor Personnel Balancing Risk How to Keep your Business Running when things go wrong Privacy & Security Miscellaneous Overview of Agenda

3. How to make sure you get what you pay for: The Importance of Functional Requirements • Detailed functional requirements are the number one way to get what you want • Detail your office practices • Get commitment from the vendor on functionality, modules required and availability by version • In addition to patient care concerns and workflow, include your legal and contractual obligations in your functional requirements: • Record maintenance & retention • E-signature requirements • Prompt billing requirements • HIPAA Privacy & Security requirements • Accreditation requirements

4. Functional requirements Software & Hardware requirements Protect your strengths & bolster your weaknesses Implementation (fixed v T&M) Reserve right not to accept any proposals and not to enter into any contracts Payments tied to milestones Attachment of RFP responses to final contract Core legal terms of the contract: Licensing Payment Warranties Indemnity / Liability limits Insurance Sunsetting Support Dispute Resolution Costs for RFP preparation Confidentiality / NDAs Start contract negotiations with your RFP

5. Perpetual Capital expense Right to use software indefinitely (but watch out for support requirements) Still have maintenance & support Term Operating expense May only use during the term of the license Still have maintenance & support What you are buying: Software Licenses Types of Software that will be required Primary EMR Application (may be comprised of multiple modules) Document Imaging Operating Systems Interface engine Identity & security management

6. Right to use Source Code (probably not) Object Code (machine readable) Locations Primary Data Center Local copies / Thin clients Backup & Disaster Recovery Hot Sites Licensed content Limitations / Basis for cost Users or Concurrent Users Physicians Mid-level providers Nurses Administrative Personnel Workstations or Servers Exam rooms Patient records Transactions The License: Subparts

7. What you are buying: Hardware • Get definitive list from vendor but will generally include: • Servers • Routers (wired and/or wireless) • Desktops, laptops, tablet PCs • Printers • Scanners • Bar code readers • Uninterruptible power supply

8. Hosting the application yourself On-Site Personnel Space & infrastructure Data Center options Multi-site practices “On-the-Wire” issues Hardware requirements Capital expenditures Application Service Provider (ASP) EMR Vendor Third party providers Basis for cost Processing fees Reporting “On-the-Wire” issues Reduced hardware requirements Reduced capital expenditures Bringing the system In-House later Where to put it all: On-Site v. ASP

9. Maintenance Correction of warranty defects Updates, releases and versions Minimum implementation times Interface upgrades (primary v. third party changes) Hardware & software upgrades Support 24X7X365 – Probably Escalation levels & response times Documentation Down-level support What you are buying: Maintenance & Support Ongoing guaranty that Warranties remain in force

10. What you are buying: Training • On-Site v. Vendor’s site • Interrupting workflow • Varying levels of training • New staff • Yearly training • Training on upgrades

11. Right to grant licenses Will function in accordance with the documentation “substantially” v. “in all material respects” Hanging on to your RFP Software, third party software, hardware & custom programming will function as a system Software conforms to applicable laws Will not prevent compliance No threatening litigation Software free from worms, viruses, trojan horses, or other malicious code No disabling code Core functionality will not be removed Warranty pass through for third party hardware & software Interoperability requirements Certification Commission for Health Information Technology Warranties

12. Warranty Disclaimers • Responsibility for patient care • Decision Support issues • Software integrity • Limitations to express warranties • Internet

13. Warranties: Interoperability • The vendor must warrant that its software will conform to any applicable interoperability standards enacted, promulgated or adopted by, or pursuant to recommendation of, the Department of Health and Human Services, as well as any generally-accepted standards commonly adopted and utilized by and among providers of health information exchange solution providers.

14. Warranties: Certification • The vendor must warrant that its software will meet applicable certification requirements promulgated or adopted by, or pursuant to recommendation of, the Department of Health and Human Services.

15. Liability & Insurance • Convergence of: • Limitations of Remedies • Ideal – greater coverage during implementation • Minimum – all amounts paid under the contract • Make sure they are reciprocal • Damage Waivers (incidental/consequential/punitive) • Insurance – Protection against insolvency of vendor • Comprehensive General Liability with bodily injury property damage, personal injury, advertising injury, medical payments, products and completed operations • Professional Liability (Errors & Omissions). • Indemnities (typically for Intellectual Property and Bodily Injury) – should never be subject to limitations of remedies clauses • Self Insurance – subject to actuarial review & reserves

16. Termination & Dispute Resolution • Avoid possibility of premature termination before project is completed. • Structure collaborative escalation methods with vendor executives • Require mediation as a first step (not arbitration) • Choice of law • Choice of forum

17. Source Code Escrow • Of dubious benefit • Access governed by agreement between vendor and source code escrow agent • Will not protect you in event the vendor becomes bankrupt • May protect you if vendor is sold or software is suddenly discontinued • What are you going to do with it?

18. The implementation timeline • Attached to the contract? • Considers total business operations and other IT projects? • Coordination of delivery & acceptance • Failure to meet terms of documentation or functional requirements • Minimum re-testing time • Warranties in effect?

19. Statement of Work • Describes tasks to be performed by both the practice and the vendor – largely a technical document • Interfaces • Education & training • Assignment of personnel • READ CAREFULLY! • Personnel issues • Additional hardware & software issues • Hidden terms & conditions

20. Change Orders • Require mutual agreement • Require full disclosure of all additional costs • Review the Statement of Work carefully

21. Vendor Personnel • Require only the best! • Control office access • Protect your business operations during implementation • Retain and exercise the right to remove personnel

22. Balancing Risk • The best protection – YOUR functional requirements coupled with the Vendor’s responses • Establishing metrics – • Pre-installation v. post-installation metrics • Reduction in certain administrative costs • Decrease in accounts receivable • Negotiating Metrics • Its all about control • Tying metrics to performance • Penalties • Benefit funding models – ceding control for a short period of time • Interest free loans Some of these options will not be available from smaller vendors.

23. How to keep your business running when things go wrong • Backups • On-site, Off-Site, Mirrors • Installing new software • Design manual procedures BEFORE things go wrong • Require vendor to provide assistance in event of failure of the system • Temporary help • Interest free loans

24. Privacy Anonymous peaks in the record room are gone Disclosures Audited Easier compliance with minimum necessary standards Faster releases & accountings Availability of data for public health Adding research to your practice Security Many technical safeguard issues may not have been addressed in paper office Security management Workforce security Information access management Security awareness training Security incident procedures Contingency plans Evaluation of security controls & processes Privacy & Security in the fully wired office Your biggest risk – Identity Theft

25. Miscellaneous • Review other IT-related contracts for any potential conflicts • Keep your board informed & involved

26. NOT COVERED • Anti-Kickback & Stark Exceptions • Purchasing your system through a hospital entity

27. Questions?

28. Financing Health Information Technology Financing Health Information Technology Purchases Southwest Virginia Technology Council Medical Summit August 11, 2008 Southwest Virginia Higher Education Center Abingdon, Virginia

29. Capital Expenses Software licenses EMR &/or Practice Mgmt Operating Systems Security Backup & Recovery Hardware Servers Routers Backup hardware Uninterruptible Power Supply Installation Training Operating Expenses Telecommunications Support & Maintenance Additional personnel? What you are buying

30. Average Cost • Initial Costs average $44,000.00 per physician for all hardware, software, implementation and training • Annual support and maintenance costs average $8,400.00 per physician per year (should be approximately 18% of license fee).

31. Options for payment • Cash • Bank Loan • Leasing • Vendor Financing • Collaboration with Hospital or PHO • Stark & Anti-Kickback exceptions in the works

32. Pros No monthly payment No finance charges No application Immediate ownership Cons Depreciating Asset Depletion of cash reserves Negative impact on balance sheet Disregards time value of money Cash

33. Bank Loans • Credit rating dictates amount and interest rate • Application tedious • Collateral needed • Software licenses have little collateral value • Renewals may be required

34. Leasing • Pros • May qualify for IRS Section 179 exception to expenses against a capital account • Obsolescence • Lets you move to newer equipment at end of lease term • Cash flow • Asset management • Conserves lines of credit • Avoid high up-front costs

35. Types of Leases • Financing leases • Can acquire title at a guarantied purchase price • For tax purposes this is a conditional sales contract • Non-cancelable • End user is responsible for maintenance, taxes & insurance • True leases • Option to purchase at end of lease term • Option to renew • Option to return equipment at end of lease term • For tax purposes this is a lease • Master Leasing (Synthetic Lease) • Allows adding more software or hardware over the life of the lease

36. Vendor Financing / Leasing • Compare non-vendor financing!!! • Upgrade or non-obsolescence advantages? • Reduced collateral requirements • One-stop shopping ties you together

37. Questions?