This is the transcription of my discussion with Mark Anderson, CEO of the A.C. Group, Inc, discussing "Contract Terms and Conditions. What to watch for". You can listen to this interview by clicking on the YouTube play button below the first couple of paragraphs.
Robert Gleeman: This is Robert Gleeman with EMR Update. We are talking today with Mark Anderson from the AC Group. Mark's cell phone number is 1‑281‑413‑5572 and our topic today for the Getting Started section is contract terms and conditions to watch out for.
So Mark, you've decided to sign on the dotted line and it's time to negotiate the contract. How much is negotiable?
[YouTube:88kuL2PvzfE] Mark Anderson: Well it's interesting because depending on the vendor and the size of the practice, there may be a lot of things you can negotiate, but that is part of the problem that most vendors are used to having physician offices sign their normal contracts.
They are not used to doctor's wanting to negotiate much with them, although we do a lot of negotiations on large medical device purchases, but we don't do enough negotiating on these technology contracts.
Robert: The license fees, is that ever negotiable?
Mark: The license fees are somewhat negotiable. There are a couple issues you have to think about. One issue in license fees is what is their definition of a provider. It may be a doctor with a P.A. and a nurse practitioner. Some vendors may count that as three different providers.
Robert: This is one of the things that you do a lot of, isn't it Mark?
Mark: Yeah, I would say the majority of our work really is the contract negotiation. Many of the physician offices will call us up and say, look I've picked this one vendor, we have heard you can help to negotiate a better contract for us.
About 40 different contract terms need to be either adjusted either as an addendum to the contract or actually go back and change the wording of the contract to better protect the practice.
Robert: Can you tell me, what is the most negotiable and what is the least negotiable?
Mark: Well I think there are a couple that you need to negotiate no matter what. In other words, if they are not willing to negotiate with you, you should walk away from the deal.
The highest ones really are all about support. The number one priority always has got to be, I've got to make sure this product is working effectively and if it is not working effectively, the vendor needs to make it so that it will work in my time frame, not their time frame.
That is probably the biggest area of negotiating, is negotiating the support contract and what happens if the vendor does not provide the adequate support that you were expecting. Those need to be negotiated right off the top.
Robert: Included in that part of the negotiation of the support, would you include in that how you will receive updates, new versions, patches, and etcetera?
Mark: Yes because it's very important that you stay as current as you can on the products because there is always new regulation coming out. There might be state or national requirements or just upgrades to the product.
The challenge you also run into is that most of the vendors, if you pay your support fee, they will provide you an upgrade, but what is the definition of an upgrade? They may add something new to it that they call a new product. So you really need to define what a new product is versus an upgrade. Then is there any testing of those upgrades.
Robert: Do you find the vendors are willing to state assurances and state what their escalation policies are and problem resolution policies? Are they willing to do it?
Mark: Some of the larger vendors are willing to do that if they have already established those escalation policies are out there. Many of the small vendors have never even heard of this kind of stuff.
Robert: If a vendor goes out of business or is acquired, is it reasonable in the contract to ask for some kind of a source code escrow clause?
Mark: Yes, well actually there are two ways. So another vendor buys out the software product, your contract should stay in effective for at least the next five to seven years. That needs to be a contract addendum in there. What you don't want to have happen is somebody buys out your EMR product and then they stop supporting it because they want you to switch to something else.
Same thing is if the company goes out of business, you want to have a clause in there that you can get access to the source code, which is called an escrow account. It's important too that if the practice gets sold, that you are able to transfer that license to the buying new company.
Robert: You've mentioned before, Mark, that some of these contracts are very one‑sided in favor of the vendor. Can you ever work it out with the vendor to have milestone payments at key phases?
Mark: We've done on every one of our contracts, no matter who the vendor is. You always pay something up front to buy it. You pay another percentage once the product is installed and somewhat usable. You pay another percentage once your staff is fully trained on how to use the product and typically you do not make the final payment until 30‑90 days after going live.
I want to make sure the system is working and go through all that; otherwise the vendor is not getting their final payment.
Robert: This seems like a long process. How long should you expect this to take?
Mark: Well if you've never negotiated a technology software contract with escalating clauses, it will take a physician a long time. I mean it can take you two or three weeks to negotiate all of the different points that are out there if you have never done one before.
A lot of practices will give the contract over to their lawyers. Lawyers are very good at going through this and looking at the periods and the commas to make sure that everything is legal. Most of them are not that strong on technology software contracts.
Robert: You told me once a while back how many of these contracts you have negotiated. Do you recall?
Mark: Well I would say since 2000, we've probably done about 600 contracts that is [xx] negotiation. Although we have done a lot more where the practice came to us afterwards and said, things are not working; can you help us get out of the contract?
After we go back and look at the contract and say this is a strong contract, you have no out clauses at all. One of the most important factors in a contract is making sure the product meets your requirements. Too many times the doctors will say, gee can your product do this, and the vendor says sure we can do it, some day for some cost, but it may not be in your cost proposal.
A lot of our clients have actually added additional functionality they want built into their product over the next 12 months. We've gotten the vendors to sign off that they will add additional functionality to their products within a period of time or the client (the physician practice) gets a rebate on the software.
Robert: Should a doctor request from a vendor to look at the contract before even making a decision to buy that software?
Mark: I think part of the selection process always is while you are looking at the software originally, you should be getting a copy of an estimated quote on the cost and then the actual contract wording to review. I've seen contracts come in where the doctor signs and they get hit with 50% more costs. Things that they didn't realize were there.
They were in the contract but they are in fine print or if this and this, or escalations of cost. They don't really realize how much more they might be paying for something they thought was going to be included in the actual software cost.
Robert: This can be one of the most important contracts a doctor ever negotiates, can't it?
Mark: It probably is the most important because when you think about electronic medical record, your billing system and everything it's the running of your business and if it goes bad and you are not able to generate the right notes or the right bills, you don't get paid.
Robert: Now one thing I know that you try to do is make your fee transparent. In other words, save the doctor enough money to cover your fee. Are you usually able to do that in helping to negotiate a contract?
Mark: We have found on average that depending on the size of the practice, you get an X times reduction in cost that more than over compensates for our cost. A sample would be that we have found practices with over 50 doctors having saved nine times our cost.
For one and two doctor practices there is not a lot of cost, not a lot you can negotiate, but we are still saving about three to four times our cost.
Robert: Is there a red flag that you should be looking for when you negotiate these contracts?
Mark: The biggest red flag would be is when they send you a purchase order with almost no terms and conditions built in. The small physician practice, the one, two and three doctor practice should be requiring the vendors to provide not only a purchase order or a contract fee, but true terms and conditions.
Terms and conditions will be a minimum of 8‑12 pages long, in small print too.
Robert: Any final warnings to the readers of EMR Update, Mark?
Mark: It's always buyer beware on all of these things. I think there are a number of vendors that participate in EMR Update that have very good contracts out there. A couple ones I have negotiated in the past. There are only two or three terms we need to have changed on there.
Other vendors we have added 20 or 30 pages of changes to their contracts. You don't want to make the wrong decision and sign the wrong contract.
Robert: We're talking with Mark Anderson from the AC Group. Thanks again Mark.
Mark: Thank you.
Thanks again to Mark Anderson, AC Group for supporting our Getting Started resources for Doctors Researching EMR solutions.
For more information about the subjects discussed here you can contact Mark Anderson at the details listed below.
See our other Getting Started resources here.
Mark R. Anderson CPHIMS, FHIMSS
CEO and Healthcare IT Futurist
AC Group, Inc.
118 Lyndsey Drive
Montgomery, TX 77316
Mar 15 2008, 08:52 AM