Computer Technology Update

New Rules for Your IT Vendor Search


Competition in the long-term care software market is beginning to have an impact on long-term care providers. General competitive pressure and new requirements in overall healthcare information technology (IT) are resulting in improvements in long-term care software, as vendors try to remain competitive and provide additional applications to meet emerging Internet functionality demands. Applications such as electronic medical records, computerized order entry, risk-management documentation, pharmacy ordering/dispensing/bar coding, clinical protocols/pathways, drug interaction databases, and Web application service provider (ASP) options are becoming available from long-term care software vendors. And even though providers don’t often change their major software suites, the new applications will become very attractive when software replacement becomes necessary.

Experience has demonstrated that possibly the most important factor in ensuring successful use of software is the vendor’s ability to deliver on its assurances over time. How can providers select vendors who will provide the reliable performance and relationships that are needed to support long-term care operations over time?

The first important step is to consider factors beyond the software product itself, including the vendor’s team, methodology and support processes, and financial status. Many providers never fully research these factors in performing due diligence on vendors. Key information to obtain includes:

  • The vendor team. Who are the executives, senior managers and members of the board of directors, and what are their backgrounds?
  • Vendor methodology/processes. What is the process for deciding on desirable new product features, and how are the final decisions made? What is the process for testing new product features? How is product support organized, what are the performance standards, and how are these standards measured? What is the vendor’s overall quality assurance process?
  • Vendor financials. What is the company’s cash position, the process that determines spending and investing decisions, and the company’s strategic plan for the next five years?

In general, providers should not hesitate to ask for detailed written information on vendors’ leadership and key staff, software enhancement and support processes, and financials. The decision to select a vendor should in fact be based on the answers provided to these questions, as well as to direct evaluations of the product.

In addition to obtaining detailed information, it is important for the provider to know if the vendor’s product uses industry standards and standard technology architecture, if the product can be easily integrated as required with products the provider already has, and if the vendor has a sound and reasonable plan for product improvements. Again, detailed information should be obtained.

One strategy used of late by some nursing home providers is to avoid an initial highly detailed specification of product requirements and instead provide the vendor with an overview of the provider’s strategic business and operations objectives, followed by a product demonstration and pilot test. Although this approach does not preclude getting detailed information about the product, it is extremely important in evaluating whether the vendor and its product support the organization’s future growth and development. When providers make vendor decisions based on “cutting edge” software functionality and avoid consideration of the need to establish a longer-term relationship with the vendor, it is highly likely that dissatisfaction will result.

Four basic areas of vendor performance should always be evaluated: (1) product functionality and technology, (2) quality of the vendor team, (3) vendor product development and support, and (4) vendor financial status and financial history. Purchasing new information systems involves establishing a business relationship with a vendor. A successful relationship depends on shared goals and expectations, as well as on consistent and high-quality vendor performance over time. What follows is a checklist of recommendations for evaluating IT vendors in today’s marketplace:

Vendor Due Diligence Checklist

1. Request and review most current vendor system installation and project management documents for the system(s) and applications likely to be contracted for.

2. Examine 3 to 5 years of vendor year-end financial statements, regardless of whether vendor is a public company.

3. Review vendor-provided “system maintenance and support” agreement.

4. Review vendor-provided hardware and related software requirements (and all associated costs, if needed to contract with vendor).

5. Have vendor provide multiyear (e.g., 5-year) cost estimates, including estimates for initial system costs; base system applications costs; optional applications costs (if applicable); all applications’ modifications costs (including all interface costs); installation, consultation, implementation, and training-related costs; annual recurring costs for licensing fees, software maintenance, and support (hardware maintenance if applicable); and other annual operating and maintenance costs if not covered above.

6. Complete and document all reference checks from vendor references.

7. For finalists in the vendor selection process, conduct comprehensive on-site visits of vendor clients (a minimum of two visits for each vendor).

8. In reviewing vendor software license agreements (which may include implementation, training, and software support responsibilities):

    a. Review and carefully consider payment terms and require a significant holdback of payment until final acceptance of the system.

    b. Carefully review user training requirements and options, and inquire as to other clients’ experience with training requirements and support, including accuracy of vendor cost estimates.

    c. Carefully review vendor warranty specifications in terms of length and completeness of warranty and acceptability of warranty terms.

    d. Review all software license fees, determine whether fees cover a sufficient number of users, and determine what would be the fees for additional users and sites. Determine how multifacility licenses are provided.

    e. Review the specifying and assurance of delivery dates.

    f. Review vendor provisions for regulatory-related software updates, HIPAA compliance (security, transactions, and privacy rules), and compliance with changes in federal and/or state regulations for coding, billing, and reimbursement.

    g. Carefully examine “limitation of remedy” or similar provisions for failure of software to operate correctly.

    h. Identify and review any provisions that might prevent your facility from using a competing vendor’s software.

    i. Carefully examine provisions for vendor support in terms of timeliness, completeness, levels of support, and remedies if support is not adequate.

    j. Review provisions for termination of the contract.

    k. Review the software maintenance and support agreement (if a separate document).

    l. Review whether the software contract contains restrictions on the use of the software by any parent, subsidiary, additional entity, or third party.

    m. Require that vendor escrow source code in the event of vendor insolvency or termination of business operations.

    n. Consider a relatively long period after software implementation and training before final software acceptance.

    o. Review the contract agreement to determine the ownership of any customized software provided by the vendor.

While this level of review may seem demandingly detailed, every one of these items has been known to lead to misunderstandings and frustration when not properly attended to. With IT operations and functions increasing exponentially these days, it is more important to your business and clinical operations than ever to be a sophisticated and careful IT shopper. NH

Malcolm H. Morrison, PhD, is president/CEO of Morrison Informatics, Inc., an information technology and data analysis consulting company in Mechanicsburg, Pennsylvania. For further information, phone (800) 559-8410 or e-mail To comment on this article, please send e-mail to

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