Healthcare organizations are buying more AI tools to handle everyday business tasks. These tools can help with scheduling, patient intake, billing, claims, records, and other office work. They can save time and reduce work for staff, but these contracts deserve careful attention.
An AI vendor agreement is not always another software contract. The tool may have access to sensitive data or connect with other systems, and may also rely on other companies to provide parts of the service. These contracts may give the vendor rights that are much broader than the customer expects, frequently raising privacy or billing issues. Depending on the arrangement, federal fraud and abuse rules may matter too. The following questions are a good place to start.
1. What is the tool actually supposed to do?
Start by understanding what the organization is buying and how it plans to use it. AI vendors may make broad claims about what a product can do. The agreement should describe the service with enough detail that the organization can tell what it is entitled to receive. It should identify the key features that drove the purchase. It should also address who can use the tool and any important integrations or support. If an important feature helped drive the purchase decision, consider putting it in the agreement, an order form, or a schedule rather than leaving it only in marketing materials.
This does not mean the vendor must guarantee a particular business result. A vendor may reasonably resist promising that its product will reduce costs by a certain amount or produce a particular outcome. But that is different from leaving the basic scope and functionality of the product unclear.
Fully understanding the use also helps determine what legal review is needed. An AI system used for scheduling may raise one set of issues. A tool used for claims or billing can raise others. So may a tool that handles prior authorizations or patient communications. As the tool moves closer to diagnosis, treatment, or other clinical decisions, the legal and regulatory review should become more focused as well.
2. What data will the vendor receive, and what can it do with it?
AI tools often need access to data to work. That makes data rights one of the most important parts of the agreement. Start with a basic question: what information will the vendor receive? Then ask what the vendor may do with it.
Can the vendor use the organization’s data only to provide the service? Or can it also use the data to train its models or improve its products? Can it combine the organization’s data with data from other customers? The answers may be spread across several documents. The main agreement may say one thing while online terms say something else. The negotiated agreement should make clear which terms control if they conflict.
The organization should ask the same questions about information created through the service. That may include reports, custom workflows, or other work product developed during the relationship.
3. Is PHI involved, and does the BAA fit the deal?
If the vendor will create, receive, maintain, or transmit protected health information in performing its duties on behalf of the organization, a business associate agreement, or BAA, is generally required under HIPAA. Signing a BAA, however, should not end the review. For HIPAA purposes, the organization should follow the actual flow of patient information, not just rely on how the vendor describes the product.
The BAA and the main contract should work together. A BAA may limit how the vendor can use patient information, while the vendor’s standard terms give it broader rights for training or other purposes. The organization should also know which other companies may receive PHI. If the vendor uses subcontractors to deliver or perform the service, the BAA should address those downstream uses and ensure the same HIPAA obligations and restrictions set forth in the BAA are passed on to these entities.
Security also matters. The organization should understand what the vendor must do if there is a security problem and set forth clear terms outlining the steps they will take in such an instance in the BAA. That includes how quickly the vendor must give notice, what help it must provide after an incident, and how the parties will coordinate any required notices to affected individuals or regulators. A vendor saying that its product is “HIPAA compliant” does not answer these questions or replace a review of whether the AI company has appropriate safeguards under HIPAA.
4. What is the vendor actually promising?
Sales discussions often focus on what the product can do. The contract should answer a different question: what is the vendor promising to do? Look at the vendor’s duties after the agreement is signed. Who handles setup? Who connects the tool to existing systems? Who trains staff? What support is available if the tool stops working? How quickly does the vendor have to respond?
The same review applies to performance. If speed, accuracy, or availability matters to the business case, determine whether the contract says anything about it. For tools used in billing, claims, coding, or prior authorization work, the contract should also address the vendor’s role in compliance and identify when human review is required. If an error has to be corrected or a payment is later reviewed, the organization should know what records the vendor will keep and what help it will provide.
There may be good reasons for some limits on vendor liability. The important point is to understand the balance. What risks does the vendor accept? What risks stay with the healthcare organization? Does that balance make sense based on what the vendor controls?
5. What will the service really cost?
The price on the first page may not tell the whole story. Some AI products have a flat subscription fee, while others charge based on use. There may also be added charges for setup, support, extra users, added features, or outside services. Executives should understand how the price changes as use grows.
Renewal terms also matter. Can the vendor raise prices each year? Can the organization reduce users or services? Is there a long-term commitment or minimum fee? Most AI purchases raise ordinary pricing questions. Some may also raise healthcare regulatory questions. Closer review under federal fraud and abuse laws may be appropriate, for example, if the arrangement involves something of value being provided to a physician or other referral source, or compensation tied to referrals or the generation of Federal health care program business.
6. What happens if you want to leave?
A tool that works well can become part of the organization’s daily operations very quickly. That makes the exit terms important before the relationship even begins. What happens if the product does not work as expected? Can the organization terminate the agreement? How much notice is required?
Think about the transition too. Can the organization get its data back in a useful form? Will the vendor help move it to a new provider? How long will access continue after termination? When will the vendor delete its copies? If PHI is involved, the BAA should address what happens to any PHI when the relationship ends. The agreement should also address a sale or change of control of the vendor or an end to the service.
These issues may seem remote when a new product is being purchased. They become much more important after the organization has spent months building the tool into its normal operations.
Keep the review practical
Healthcare executives do not need to become AI experts before buying an AI tool. They do need to understand the deal. Start with the basics. What does the tool do? What data does it use? What can the vendor do with that data, and who will have access? What is the vendor responsible for? What will the service cost? What risk does the vendor accept? What happens when the relationship ends?
Asking those questions before signing can help an organization identify problems early and enter the relationship with a clearer understanding of both the benefits and business and regulatory risks.
