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Wiggin & Dana recommends that a hospital develop contract review procedures both to facilitate the internal review of routine contracts as well as to identify and screen more significant contracts before they are sent for outside legal review. Here are some general suggestions and a checklist of items for hospital administrators and business people to keep in mind while reviewing purchasing and other routine agreements.

1. Establish a policy that defines what kind of review different types of contracts will require. For example, a hospital might decide that purchasing contracts with a value of $5000 or less will receive one kind of review while purchasing contracts with a greater value will receive a different level of review. The policy should also identify other kinds of contracts that will receive special review, such as employment agreements, contracts for the purchase or provision of important software and information technology systems, contracts with physicians, and other contracts with heightened regulatory risk or significant monetary exposure.

2. Be certain that an agreement accurately reflects your understanding of the arrangement and what has been negotiated. Have you had a prior agreement with the vendor? If so, and if there were any problems or disputes, make sure the agreement clearly resolves them.

3. Review the agreement in light of Hospital policies and procedures. Are any of the terms contrary to Hospital policies and procedures?

4. Review the business deal in light of your understanding of regulatory/reimbursement requirements. Note any concerns you have.

5. Are there any terms that are “deal breakers”?

6. Is the agreement with an individual or a business owned by someone with a special or influential relationship with the Hospital (e.g., a director, officer, child of a director, department chair, etc.)? If so, note that issue.

7. To the extent possible, resolve business issues prior to sending the agreement for additional or legal review.

Identify the parties. Who is providing the goods or performing the services? Who is paying for the goods/services?

Is the proper corporate entity listed as a party? Is the signatory an appropriate person?

What is the time frame for performance of the contract? If there is a warranty, from what date does the warranty run (date of delivery or date of acceptance)?

The Background Statement (or “Whereas” clauses) should provide a brief summary of the agreement between the parties but is not considered a binding part of the contract. Any terms and conditions contained in the Background Statement should appear in the body of the agreement.

The goods or services to be provided should be well defined and described accurately, either in this section or in an attached Exhibit or Purchase Order.

The Obligations of each of the Parties should be set forth. Milestones for achieving performance can be set forth here or in an attached Exhibit or Purchase Order.

The agreement should contain language addressing renewal and termination. You may want to require advance notice of renewal and advance notice of termination. Be sure to include a mechanism for termination or expiration other than for cause.

An “evergreen” agreement automatically renews each year unless a specified advance notice is given.

The agreement should contain language providing for termination for cause (breach of the agreement by one of the parties). What constitutes cause should be defined, either here or elsewhere.

The agreement should clearly state when payment is due and specify the amount due.

Make sure your billing department can process invoices within the time frame stated in the agreement (15 days, 30 days, 45 days, upon delivery).

State statutes limit the amount of interest that may be charged for late payments.

The Parties agree to numerous conditions as a basis for doing business with each other. These are called “Reps and Warranties” and can include statements such as the party is qualified, accredited, or licensed to perform the work contracted for and will abide by all relevant laws and regulations.

Indemnification provisions are common, but are extremely dangerous. In some cases, a party that is required to indemnify another for the party’s negligence could find that the party’s liability carrier will decline coverage on the ground that the claim is a contract claim rather than a negligence claim. This would be a terrible result. Consequently, it can be a good idea to clear indemnification clauses with your carrier or otherwise provide that there will not be indemnification if it would cause the loss of existing insurance coverage.

Often it is OK to delete the indemnification provision, in which case each party will still be liable for its own negligence.

As a general matter, indemnification clauses often require legal review.

Is there a non-competition clause? Should there be one?

If losing employees to a vendor is an issue, the agreement should contain a Non-Solicitation Clause providing a monetary penalty for solicitation of a party’s employees for the period during and for one year after performance of the contract.

A party sending employees on-site should carry liability insurance and be willing to provide proof of such insurance upon reasonable demand.

Depending on the nature of the agreement, the Hospital may want to be named as an additional insured.

Patient medical information is confidential information and is protected by state and federal law. Provisions should be included to require a vendor to keep patient-identifiable information confidential and use it only to the extent necessary to perform the services under the agreement.

HIPAA imposes special requirements that are beyond the scope of this outline.

Protection is necessary for any proprietary information of the Hospital such as business information and IT to which a vendor/consultant has access. (See attached Addendum)

Does the contract provide software, CD rom/DVD, or access via the internet to a database? If so, a software license is necessary.

Does the contract contemplate R&D? If so, an assignment of rights may be necessary.

If important intellectual property is involved in the contract, outside legal review may be a good idea.

Be sure to identify, if appropriate, how and when the goods and services should be provided and describe any relevant quality requirements.

The Hospital may not bill Medicare or another government program for goods or services provided by someone excluded from the programs; a vendor should represent that it has not been excluded. (See attached Addendum)

A vendor should notify the Hospital immediately if it is convicted of a criminal offense related to health care and/or to the provision of services paid for by a government program or is excluded or debarred from participation in any federal health care program. (See attached Addendum)

The standard Medicare “access to books and records clause” should be included. (See attached Addendum)

Is there a new service being provided? Is this agreement for the purchase of a piece of major medical equipment exceeding $400,000? Does this involve a capital expenditure exceeding $1,000,000? If so, a CON from OHCA may be required.

Is the Hospital giving or receiving something of value in return for business paid for by Medicare or another government program? Is there a discount involved? (See attached Addendum) If so, counsel may be required.

Is the agreement with a physician who refers to the Hospital or with an entity in which a referring physician has a financial interest or relationship? If so, the Stark Act may be implicated, and counsel may be required.

If the Hospital is not getting fair market value, or if a hospital insider is involved, the transaction should be examined to make sure it is consistent with the Hospital’s exemption under section 501(c)(3).

If a private individual or company is going to use some part of the Hospital’s property for non-hospital purposes, there may be a property tax exemption problem or a CHEFA bond problem.

What happens if the vendor does not perform or if the Hospital suffers damage as a result of breach or non-performance of the Agreement?

Consider arbitration and/or mediation as a method for resolving disputes.

The choice of law and of venue should be Connecticut unless the other party has leverage and insists on the law of its state.

The agreement should be assignable by a party only with the written agreement of the other.

The parties are likely to be independent contractors.

The agreement should only be amended in a writing signed by both parties.

Make sure that the names and addresses of the individuals designated to receive official notices are correct.

If [Vendor] provides any “discount or other reduction in price” as referred to under Section 1128B(b)(3)(A) of the Social Security Act 42 U.S.C. § 1320a-7b(b)(3)(A), it shall disclose the discount or reduction in price on its invoice to Hospital, and Hospital agrees to disclose that discount or reduction in price under any state or federal program which provides cost or charge –based reimbursement to Hospital for [the Equipment, Software, or other products] covered by this Agreement.

[Vendor] acknowledges that patient medical information is confidential information and is protected by state and federal law. [Vendor] shall not disclose patient-identifiable information to any third party and shall use patient-identifiable information only to the extent necessary to perform the services under this Agreement. [Vendor] shall be liable for any misuse, misappropriation, disclosure, or any other breach of the private nature of patient-identifiable information arising out of [Vendor’s] performance under this Agreement.

Proprietary Information

All information about the Hospital furnished to or obtained by [Vendor] in connection with the performance of its duties hereunder, including information about the Hospital incorporated into [Vendor’s] documents, is “Proprietary Information.” Proprietary Information does not include information that: (a) is generally available to the public; or (b) was available to [Vendor] on a nonconfidential basis prior to its disclosure by the Hospital. Except to the extent permitted by this Agreement, or as required by applicable law, [Vendor] agrees: (a) to keep all Proprietary Information confidential; and (b) to take reasonable steps to safeguard and protect the Proprietary Information. [Vendor] shall not disclose any Proprietary Information to any third party unless the third party has a need to know such Proprietary Information to fulfill [Vendor’s] obligations hereunder. [Vendor] will cause its subcontractors, agents and other representatives to observe the terms of this Agreement. In the event that [Vendor] is required by applicable law to disclose any Proprietary Information, [Vendor] shall provide the Hospital with prompt notice of such request.

Corporate Compliance

[Vendor] understands that the Hospital has adopted a Corporate Compliance Program and is committed to complying with all applicable laws, rules and regulations. Accordingly, [Vendor] shall comply with all laws, rules and regulations concerning the services or items furnished to the Hospital under this Agreement. In addition, [Vendor] shall bring to the attention of the Hospital’s Compliance Officer, or his designee, any alleged improper practices [Vendor] may discover in association with this Agreement so that the Compliance Officer may take appropriate action.

Option 1 for indemnification of Hospital only:

[Vendor] shall indemnify and hold the Hospital, its officers, employees and agents harmless from any and all liability and damages, costs and expenses, including reasonable attorney’s fees and costs, that Hospital or its officers, employees or agents become obligated to pay due to the negligent or intentional acts or omissions of [Vendor] or any of [Vendor]’s personnel arising out of [Vendor]’s duties and obligations under this Agreement. This provision shall survive the termination of this Agreement.

Option 2 for mutual indemnification by the parties:

Each party shall indemnify and hold the other, its officers, employees and agents harmless from any and all liability and damages, costs and expenses, including reasonable attorney’s fees and costs, that the other or its officers, employees or agents become obligated to pay due to the negligent or intentional acts or omissions of the party or any of its personnel arising out of its duties and obligations under this Agreement, provided that no indemnification will be required to the extent it would result in the loss of available coverage under liability insurance maintained by either party. This provision shall survive the termination of this Agreement.

Medicare Access to Books and Records

Until the expiration of four years after the furnishing of the services provided under this contract, [Vendor] will make available to the Secretary, U.S. Department of Health and Human Services, and the U. S. Comptroller General, and their representatives, this contract and all books, documents and records necessary to certify the nature and extent of the costs of those services. If [Vendor] carries out the duties of the contract through a subcontract worth $10,000 or more over a 12-month period with a related organization, the subcontract will also contain an access clause to permit access by the Secretary, Comptroller General, and their representatives to the related organization’s books and records. This provision shall survive the termination of this Agreement.

Medicare Representations and Warranties

[Vendor] represents and warrants that neither it nor anyone performing services under this Agreement has ever been (1) convicted of a criminal offense related to health care and/or related to the provision of services paid for by Medicare, Medicaid or another federal health care program; or (2) excluded or debarred from participation in any federal health care program, including Medicare and Medicaid.

Medicare Notification Requirements

[Vendor] shall notify Hospital immediately in the event that it or anyone performing services under this Agreement (1) is convicted of a criminal offense related to health care and/or related to the provision of services paid for by Medicare, Medicaid or another federal health care program; or (2) is excluded or debarred from participation in any federal health care program, including Medicare and Medicaid. The Hospital may terminate this Agreement immediately upon the occurrence or notification of any of the above.

This outline and the Addendum are designed to inform clients and interested parties about some issues of general interest in health care contracting. Nothing in this outline or Addendum constitutes legal advice, which can only be obtained as the result of consultation about the specific contract at issue.