News & Insights

Terms to be concerned about when entering into agreements to finance or otherwise acquire an electronic medical record system, software and other technology

TRIAD - Michigan Osteopathic Association (Winter 2017)

By Daniel J. Schulte, MOA Legal Counsel
December 22, 2017

Read the full issue here.

Purchasing technology can come with less than obvious problems. Most often these problems do not become apparent until after the agreements are signed and something goes wrong. The equipment does not function as represented, the software turns out not to be compatible with other software or another device that it must interact with, etc. It is critical that you anticipate these scenarios before signing any agreement. Below are some problematic terms that are frequently found in technology purchase/finance documents. You should the position these terms put you in when something goes wrong before signing any agreement.  

  1. Financing/leasing technology from someone other than its developer/manufacturer. Very often, the developer/manufacturer will have an arrangement with a finance or leasing company enabling you to finance the cost of the technology through a loan or leasing transaction. This may seem to be just a convenience for you but can be problematic if the technology does not perform as represented or for some other reason you desire to pursue a claim against the developer/manufacturer of the technology. The loan repayments or lease payments will be required to be made to the lender or lessor whether or not the technology actually functions as represented, is free of defects, properly integrates with your practice, etc. The financing or leasing transaction is entirely separate and distinct from the purchase transaction. You will have no right to discontinue making payment to the lender or lessor even if the technology completely fails to operate.
  2. Warranty Disclaimers.   Most technology developers/manufacturers provide no warranties that the technology will function as it has been represented to function or even that the technology is free of defects. In addition, they routinely disclaim any warranty provided by law. You should carefully review your purchase agreement and/or your license agreement to determine the scope of the disclaimer. Most agreements provide that unless expressly stated (and there is usually nothing stated in the agreements) the seller of the technology makes no warranty, representation or other promises regarding the quality of the technology, its fitness for your practice or otherwise. It is very likely that your technology seller will not contractually stand behind the quality or fitness of their product unless you insist that you be provided some kind of warranty.
  3. Damage Limitations. In addition to failing to provide/disclaiming any warranty, technology sellers developers/manufacturers usually disclaim liability for the expenses and other losses that you incur in any way connected with a failure of the technology to perform as represented and/or be a good fit for your practice. The limitation provision is sometimes absolute (i.e. there is no obligation to compensate you under any circumstances). Other times, the amount of the obligation is limited to what would be an unacceptably low amount that bears no relationship to the actual amount of the damages you have incurred (e.g. the amount you paid for the technology, six months of license fees, etc.).

It is unrealistic to expect to be able to adequately protect yourself against having to pay for technology that you discover does not work as represented and/or is not a good fit for your practice due to how technology developers/manufacturers do business. The only way to protect yourself is to thoroughly vet the technology prior to purchase. This vetting should include not only what the technology sales person is telling and showing you but must also include discussions with references (e.g. speaking directly with representatives of practices similar to yours that have implemented the technology.) It is absolutely critical to do this due diligence prior to purchasing any technology. Given the contract terms described above, which are typically included in technology sales agreements, you will likely have little if any remedy upon your dissatisfaction with technology following its purchase. 

About Daniel Schulte ...

Daniel J. Schulte has more than 20 years experience representing small business owners in all aspects of transactional, operational and regulatory legal matters. A Certified Public Accountant as well as an attorney, Dan is the firm's managing partner and chair of the Health Care Practice Group.  

He regularly advises and counsels concerning the formation of business entities, the preparation and review of business and corporate contracts, the purchase and sale of ownership interests in businesses and/or their assets, and the purchase, sale and leasing of real estate. A significant component of Dan’s practice involves representing healthcare professionals in state regulatory matters, including disciplinary and other licensing disputes with the State of Michigan, and federal regulatory matters including fraud and abuse issues. He also counsels on the anti-kickback and Stark laws, preparation of compliance programs, and responding to and negotiating settlements in connection with government enforcement actions.

Dan is well-known for his knowledge and experience in the area of association law, and is primarily responsible for the firm’s representation of the Michigan State Medical Society the Michigan Dental Association and the Michigan Osteopathic Association.  His work related to association law includes the drafting and review of new legislation and the preparation of Amicus Curiae Briefs for filing in Michigan’s Supreme Court and Court of Appeals on a variety of topics affecting health care professionals practicing in Michigan.

Dan writes articles and presents frequently before legal, medical and business groups on a variety of topics, including HIPAA, the HITECH Act, the Stark Law, the fraud and abuse laws, health care compliance plans, business succession planning, asset protection, and estate and tax planning. 

He is ranked among The Best Lawyers in America®, and has been named a “Michigan Super Lawyer” by Thomson Reuters.

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