Are You Doing Healthcare Vendor Risk Management Right?

Can you name every third-party dependency related to your latest project?

The more parts you add to the equation, the harder it is to keep your software secure and compliant. And from doing 60+ projects in healthcare, we know that vendor numbers snowball in no time. That’s where healthcare vendor risk management enters the picture.

From our experience, many health tech companies lack formal vendor risk management. Even if they have one, they may lack the time and resources to carry it out. It feels like more trouble than it’s worth — until you run into an issue that causes critical bugs or data leaks. But it doesn’t have to be like this.

Join us to discover a simpler vendor risk management framework and say goodbye to compromises between security and quality.

Is Your Software Safe From Vendor Risk?

By collaborating with the right third parties, you can focus on what you do best and avoid building everything from scratch. But this connection comes with its unique set of risks. Even if integrating with something as well-accepted as Epic, it’s still your job to review their SOC2 reports and ISO specifications.

If one critical vendor fails, the domino effect can be catastrophic — data leaks, failed services, mixed-up records, you name it. Besides damaging the company’s reputation, it also puts you, the PM tasked with establishing and managing the relationship, in a tough spot.

Are you prepared to manage these risks? Or are you blindly trusting that vendors have your back?

The Importance of Vendor Risk Management in Healthcare

Vendor risk management addresses six threats: cybersecurity risks, business continuity, regulatory compliance, reputation control, financial stability, and strategic risks affecting business goals. Effective VRM ensures neither can harm your company, but only if you put time and effort into establishing it.

If heaps of projects and deadlines left you unsure about the vendor risk management process in your company, ask yourself the following:

• Do we have a formal VRM process in place?
• Are we conducting thorough due diligence for all vendors?
• Do our contracts include data protection and compliance clauses?
• Have we categorized our vendors based on risk level?
• Are we monitoring vendor performance and risks?
• Do we have incident response plans for vendor-related issues?
• Are we keeping detailed documentation of vendor-related activities?

Out of these seven questions, we're aiming at seven affirmative responses because you can’t do healthcare vendor risk management partially. Each puzzle piece contributes to compliance and security, and the picture isn’t complete without them all. And in an industry with such sensitive data, incompleteness isn’t an option.

Before moving on to specifics, let’s see what benefits a solid VRM framework can bring to your health tech company:

• Patient data safety. Given the rates of cyberattacks in healthcare in recent years, you can’t let vulnerabilities exist in your system due to third parties.
• Healthcare software compliance. Non-compliance is non-negotiable in healthcare. Through VRM, you can confirm vendors abide by standards like HIPAA, HITECH, and ISO.
• Service continuity. Health tech solutions are integral to patient care. Failures and service disruptions lead to operational damage and can affect patient outcomes.
• Quality assurance. Your vendors must adhere to quality standards so your software can do the same.
• Reputation management. Health tech companies rely on their reputation for providing secure and reliable solutions — otherwise, adoption rates will be low.

Implementing a Vendor Risk Management Program

Despite being crucial, a vendor risk management framework can be hard to implement in your healthcare software company. The main issues you may encounter are a lack of resources, awareness, and stakeholder support. Luckily, a stakeholder report that includes possible risks and the costs associated with them should get you the support you need. Grab the best practices from our executive reports guideline, and your talking points from our blog on why health tech companies need better vendor relationships.

The Vendor Risk Management Life Cycle

Healthcare vendor risk management isn’t a one-time thing — it’s best to think of it as a life cycle. This framework maintains security and good performance throughout your relationship with the vendor.

1. Choosing a Vendor

In the initial stage, you identify potential vendors and pick the best fit based on your needs and risk appetite. So, the first step is to look inward.

Define your business objectives and service requirements. Identify what regulations your software must meet, which risk level is acceptable, and how much you can spend on a vendor. Finally, rank your selection criteria: cost, quality, reliability, experience, and reputation.

For example, if you wanted to leverage predictive analytics for hospitals, you ,ay need a vendor who provides a scalable data analytics platform that integrates with Epic EHRs. You’d primarily look at partners who prioritize healthcare compliance and security, with strong cybersecurity teams and a deep understanding of HIPAA.

Once you know what you need, it’s time for market research. Issue a Request for Proposal to gather information about vendors’ security practices, compliance status, and service offerings (we call this doing your due diligence). Then shortlist, interview, and onboard.

2. Onboarding

Your legal team is your strong suit in this step, as you’re about to draft and negotiate a contract with your vendor, including the data protection and compliance clauses. In this step, you also set up communication channels and determine a report cadence to stay in the loop.

Here’s what your SLA should contain:

• Details on services, agreement length, and scope
• Responsibilities and contact points between the vendor and the company
• Payment terms, schedule, and actions the vendor must perform
• Measures for quality, defect rates, and security risks
• Conditions under which the agreement can be canceled

3. Monitoring and Performance Management

Doing your due diligence also means monitoring vendor performance during your collaboration. Review how well they’re meeting the SLA requirements and KPIs, paying special attention to security and service quality.

Regularly reassessing vendor agreements is another aspect of healthcare vendor risk management. Based on our experience, it’s generally best to audit most vendors annually and high-risk vendors twice a year. However, you should also conduct reviews whenever there are changes in the vendor’s operations or updates to industry regulations.

4. Issue Management

This step is vital for good vendor risk management. If you’re prepared to tackle them head-on, you won’t face the most severe consequences of bad business practices on the side of any vendor.

Establish procedures for vendors to report incidents, breaches, or disruptions. Each risk should have an incident response plan so you can react quickly and remedy the threat.

Once an issue occurs (and it likely will), perform root cause analysis to find the reason behind it. Doing so will highlight bad agents and holes in your vendor risk management framework.

5. Renewal / Termination

At the end of the contract, evaluate the vendor relationship to renew or terminate it. The decision depends on your company’s needs as well as the vendor’s performance and the risks they introduced during the term.

If renewing the contract, consider all issues faced during the previous period. Renegotiate the terms to address changed requirements and better risk management practices. If terminating, create system handover procedures to continue work without interruptions.

Tips on Handling High-Risk Vendors

Healthcare vendor risk management would be easy if you only collaborated with low-risk vendors, right? While this might seem ideal, it’s not always feasible or even the best strategy.

For example, at Vitamin, we are an AWS Network Certified Consulting Partner. This partnership lets our clients host applications and data on cloud infrastructure instead of physical servers. But although AWS is designed for healthcare, we must acknowledge it poses risks like data breaches and service outages.

So, how do you benefit from partners like these while minimizing the risks?

Categorize vendors based on their risk levels. That way, you can focus your efforts where needed most: on those essential vendors with high potential to impact your software.

The table below offers an example of this categorization.

This table is an excellent example of a vendor risk management framework. Maintain lines of communication with all vendors, with more frequent interactions, oversight, and feedback for higher-risk ones.

Key Takeaways

For Project Managers in healthcare software companies, risk management is a crucial task. The reality is that every vendor-related decision can make or break your project. A single misstep can derail timelines, endanger patient data, and affect your company’s bottom line.

Don’t leave your software’s security and reliability to chance. By prioritizing healthcare vendor risk management, you safeguard your projects and deliver the high-quality solutions your clients expect.

Want to strengthen your compliance and security measures? Learn about the best practices for your healthcare software company on our blog.