Third-Party Risk Management in Healthcare
Third-Party Risk Management (TPRM) in healthcare involves identifying, assessing, and mitigating risks posed by external vendors and suppliers that have access to sensitive healthcare data or systems. With healthcare organizations increasingly relying on third parties for critical functions like electronic health records (EHRs), effective TPRM is vital to protect patient safety.
I. Third Party Vendors in Healthcare
The healthcare industry depends on a network of third-party vendors to enhance patient care. While these suppliers optimize efficiency, their integration into healthcare systems also introduces risks. Understanding their roles and their potential impact on Protected Health Information (PHI) is crucial to minimize these risks. Healthcare organizations normally outsource to vendors like:
- Electronic Health Record (EHR) Providers: EHR vendors help manage patient records digitally, including medical histories, test results, and treatment plans.
- Clinical Support Services: Outsourcing to specialized diagnostic labs, imaging centers and pathology services for patient diagnosis and treatment improves accuracy.
- Supply Chain Logistics: These vendors manage delivery of medical supplies, equipment and pharmaceuticals to healthcare facilities. They help ensure timely availability of critical resources, especially during emergencies.
- Cloud Storage and IT Service Providers: They offer scalable data storage solutions and IT support for managing sensitive healthcare data and supporting infrastructure.
- Telemedicine Platforms: A hospital might use a telehealth vendor to enable remote patient consultations or patient portal services.
- Third Party Medical Billing: It’s common for healthcare organizations to have an external company manage the entire billing cycle from invoicing and payment processing to insurance verification and claims management
II. Key Risks Posed by Third Parties
- Exposure of Protected Health Information (PHI)
Protected Health Information (PHI) includes data like patient names, medical histories, billing, insurance information, and Social Security numbers. Third-party vendors handling PHI are prime targets for cybercriminals due to the high value of medical records on the black market. Unsecured data storage by a cloud service provider or vulnerabilities in telemedicine platforms could expose PHI and result in patient identity theft or fraudulent claims, directly impacting patients’ lives.
- Cybersecurity Risks
Third-party systems often serve as entry points for cyberattacks on hospitals like ransomware, phishing, and malware. Healthcare cyberattacks not only expose PHI but can also disrupt critical operations.
For example in 2017, Hollywood Presbyterian Medical Center suffered a ransomware attack due to a third party vendor’s compromised system. The hospital lost access to computer systems and had to pay a $17,000 ransom to regain access to its files. Hospital staff couldn’t access patient records and had to register patients on paper instead. Some patients were even diverted to other hospitals due to the outage, delaying patient care. This shows the importance of hospital risk management.
- Regulatory and Compliance Risks:
Healthcare organizations must comply with strict regulations to safeguard patient data, like:
- HIPAA (Health Insurance Portability and Accountability Act): HIPAA mandates the protection of PHI and holds healthcare providers accountable for their vendors’ compliance with its Privacy and Security Rules. If a vendor fails to secure patient data properly, the healthcare organization may also be held liable.
- HITRUST (Health Information Trust Alliance): Many healthcare organizations adopt the HITRUST framework to ensure their vendors meet robust security and compliance standards.
Partnering with third party vendors who fail to meet these compliance requirements can lead to severe consequences, including hefty fines, legal action, and reputational damage.
- Operational and Supply Chain Risks
Healthcare providers rely heavily on third-party suppliers for medical equipment, pharmaceuticals, and IT infrastructure. Disruptions in the supply chain, such as delays in delivering critical supplies or outages in patient portals, can directly impact patient care.
- Financial and Reputational Risks
Third party data breaches damage reputation and often result in direct financial losses including fines, legal fees, compensation to affected individuals and remediation costs. On average, healthcare data breaches costed $9.77 million per incident in 2024.
III. Best Practices for Implementing a TPRM Program in Healthcare
- Vendor Assessments
Before entering into a relationship with a third party vendor, evaluate their security posture, compliance history and operational reliability. Assess vendors’ cybersecurity posture using tools like risk rating platforms and questionnaires focused on cybersecurity and compliance practices. Do a background check on their industry reputation and check if they had any previous security incidents.
- Contractual agreements
Ensure that contracts with third parties include clauses for compliance with healthcare regulations (HIPAA, HITRUST) and define vendor responsibilities, data usage restrictions, breach notification and incident response protocols.
- Continuous Monitoring
Risks do not end after onboarding. Continuous monitoring of third-party systems ensures proactive identification of vulnerabilities. Automated TPRM software like Alliance comes with real time monitoring tools that track vendor activities and identify risks as they emerge.
- Compliance Management
Regularly audit vendors for adherence to standards like HIPAA, and HITRUST, to reduce the risk of non-compliance penalties. Stay updated on evolving regulatory requirements and ensure third parties align with them.
- Incident Response Plans
Preparedness is critical for managing healthcare data breaches. Develop an incident response plan that include:
- Clear communication protocols between healthcare organizations and vendors.
- Detailed steps to contain, investigate, and mitigate data breaches.
- Regular drills to ensure readiness for actual incidents.
- Employee Training
Educating internal staff about third-party risks helps mitigate issues arising from human error. Training should focus on:
- Identifying phishing attempts or other cyber threats.
- Safeguarding access credentials when working with third-party platforms.
- Understanding regulatory requirements related to third-party interactions.
By integrating these best practices, healthcare organizations can build a comprehensive third party risk management program that safeguards sensitive data and strengthen vendor relationships.
IV. Benefits of Robust TPRM
Investing in a proper Third-Party Risk Management (TPRM) program offers numerous advantages for healthcare organizations. Most importantly, it ensures healthcare organizations can focus on their primary goal: improving patient health and outcomes.
- Data Protection
Proper risk management in healthcare ensures that third parties with access to PHI have adequate security measures in place, reducing the risk of data breaches and unauthorized access.
- Prevent Costly Data Breaches
Effective TPRM programs help identify and address vulnerabilities before they lead to incidents like data breaches, significantly reducing the financial burden of breach recovery, regulatory fines and legal costs.
- Compliance
TPRM helps minimize the risk of non-compliance with regulations like HIPAA, avoiding fines, legal consequences, and reputational damage.
- Increases Operational Resilience
Healthcare organizations rely on third parties for critical services, such as supply chain logistics, IT support, and clinical operations. TPRM programs ensure these vendors can continue delivering services during disruptions, minimizing downtime and ensuring continuity of care.
- Builds Patient Trust and Reputation
When healthcare providers demonstrate their commitment to data security and privacy, they build trust. This trust is crucial in maintaining a strong reputation and fostering long-term patient loyalty.
- Streamlines Vendor Management
TPRM centralizes the management of third-party relationships, making it easier to assess vendor performance, security protocols, and compliance status. This kind of healthcare risk management software reduces the time and effort required for audits, contract reviews, and ongoing monitoring.
With patient safety at stake, third party risk management is more important than ever for the healthcare industry. To simplify and enhance your TPRM efforts, use tools like Alliance that offer a comprehensive solution through advanced features like automated risk assessments, real-time monitoring, compliance management, and incident response tools.