From The Editor | November 15, 2010

The Art Of Negotiating An EHR Software License Agreement


By Houston Neal, Director of Marketing, Software Advice

A critical step in any provider's electronic health record (EHR) software purchase is the negotiation of the software license agreement (SLA). EHR contracts aren't too different from other software agreements. You'll negotiate costs of the user license, discuss service obligations and find a dense "terms and conditions" section. However, you may find provisions unique to health care, like provisions related to HIPAA, the HITECH Act or special pricing based on classes of users.

When it's all said and done, agreements can be complex and difficult to decipher. So to help providers navigate the legalese, we decided to create a beginners guide on how to negotiate an EHR software license agreement. In this guide we'll focus on five key areas of the SLA:

  • User license
  • Implementation
  • Service obligation
  • Hardware and interfaces
  • HITECH Act clauses

User License
We begin our tutorial with the user license for one main reason: you will almost always be able to negotiate licensing costs. In enterprise software negotiations, some vendors offer as much as a 20% baseline discount (source). Small practices likely won't come close to this level of discount, but it gives you an idea of how much room you may have to bargain.

Before talking about price, you'll need to define "user." An EHR license agreement is unique in that a single user license may include multiple employees. For example, a user license for one MD may include mid-level providers (nurses and physician's assistants), as well as administrative staff. Alternatively, you might use a tiered pricing structure with one high cost for MDs, a lower cost for mid-level providers and an even lower cost for administrative staff. Finally, "site" and enterprise licenses exist for large medical facilities and hospitals.

After defining "user," several questions still need to be addressed. Is there a limitation on how many computers the software can be installed on? Can it be used at multiple offices? Can the license be sold or transferred if the practice is sold or merges with another company? It is important to anticipate possible scenarios of how, where and who will access the software, then address these in the contract.

Not all software vendors offer implementation services – some rely on a network of value added resellers (VARs) to provide implementation services – but it is still worth discussing here because of the high costs. For every dollar the EHR costs, you can expect to pay at least one dollar for implementation services. In larger offices or more complex environments, this ratio can be even higher; a two-to-one or even five-to-one ratio is not uncommon.

Implementation costs are based off hourly rates and an estimate of hours to complete the setup. It can also be based on monthly rates, which is sometimes cheaper. In some cases, the vendor will provide a fixed cost, but that is less common. Regardless, it is important to settle on implementation expenses in the initial agreement. You'll have the most leverage during the negotiation process and prices will likely go up after you are in a contract.

After negotiating costs, you'll need to agree on the details of the implementation process. For example, who will be responsible for transferring data into the new EHR? Will you be transferring data from another system or from paper records? What are the costs? You should also develop an implementation timeline, determine what kind of strategy you'll pursue (e.g. "phased rollout") and decide which implementation activities the vendor will be responsible for. Poor planning is a leading cause of failed software implementations, so be prepared.

Ongoing Service Obligations
Next, we address the service obligations, or support, updates and maintenance. Depending on the length of your contract, the service agreement will be the second or largest expense of your EHR software purchase. It is not uncommon for maintenance and support to be as much as 20% to 30% of the original software purchase price.

Each part of the service section deserves attention. Here are a few key considerations to begin with:

  • Support – What hours of support will be available? Does it include telephone support, in-person technical support, or both? What happens if the EHR vendor doesn't meet the support requirements? Will the contract include a clause for negligence of support and require vendors to face a penalty – either monetary or other?
  • Updates – How often will updates be rolled out? Are you required to install all updates? Keep in mind, changes to the functionality of the EHR could affect your workflow and office efficiency.
  • Maintenance – What new software releases are included in the maintenance agreement; for example, does the agreement just include patches for bugs, are are new functional capabilities included? How are the maintenance fees calculated?
  • Training – How many hours are included? What does it cost if you exceed the specified hours? Who will be trained and where will they be trained? Will you be charged for travel-related expenses for on-location training?

Hardware and Interfaces
Next, on to hardware. In addition to discussing hardware with your EHR vendor, be sure to compare prices from third party vendors. You should be able to get hardware specifications from your vendor's website or just by request. You can then use this information to get price quotes from other hardware vendors. You might find a better price elsewhere or just have extra leverage when it comes time to negotiate with the EHR vendor.

Conversely, the integration or interfacing of devices is better left to the EHR vendor. This can include everything from scanners and faxes to more complex devices like laboratory information systems and electrocardiogram (ECC/EKG) equipment. Make sure your agreement clearly identifies who will provide ongoing support for interfaces. You don't want to get stranded if both the EHR vendor and device manufacturer claim the other should provide support.

HITECH Act Clauses
Several EHR software vendors have started adding provisions for the HITECH Act into their license agreements. As details about "meaningful use" and "certified technology" are revealed every few months, it's important to make sure this section is up to date. Additionally, with thousands of dollars at stake, it's important to identify any ambiguities. What happens if you fail to achieve meaningful use? Do you receive a reimbursement covering the full amount of Stimulus Bill incentives? Or are you only reimbursed for the cost of the software?

Ultimately demonstrating "meaningful use" of an EHR lies with the provider. So find out if you are reimbursed under all circumstances, or only if the software fails to provide the features and functionality necessary to qualify. You might also consider consulting peers or attorneys that have experience with the HITECH Act laws beforehand.

Tips and Best Practices
While we have discussed the main ingredients of a software license agreement, there are several other considerations and best practices to follow when reviewing a contract. So we wrap up our discussion with a bulleted list of other things to factor in. If you would like to make a suggestion or add to the discussion, leave us a comment below.

  • Have a lawyer and senior IT staff review software vendor agreements when possible.
  • Review contract language frequently and avoid any ambiguous language.
  • Make sure any verbal agreements are backed up by a paper trail.
  • Document any "what if" fees. For example, troubleshooting support, late payment fees, system upgrades, etc.
  • Make sure the contract includes a clause about security and HIPAA compliance.
  • Ask for contract drafts in modifiable formats (e.g. Microsoft Word documents) rather than PDFs.
  • Plan a dispute resolution process.
  • Reserve the right to take vendor to court rather than submit to arbitration.
  • Identify which state's laws will be used in a dispute or arbitration.

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