Healthcare providers work with many third parties, such as IT service vendors, cloud platform providers, supply chain distributors, and billing agencies. The average healthcare organization manages relationships with over 1,300 vendors. Each vendor may affect how well the facility can give patient care or follow rules.
Third-party vendors often have access to sensitive patient information, use hospital IT systems, or handle important tasks like ordering medicine or keeping medical equipment working. This helps make work run better and can lower costs. But it also creates possible points where things can go wrong.
Third-party vendor risks in healthcare usually fit into several types. Together, they can interrupt work or hurt financial stability:
One big concern is cybersecurity. Data breaches in healthcare are rising fast, and many come from third-party vendors. For example, a 2024 study found that 74% of healthcare cyber incidents involved third-party vendors. In that year, 41% of breaches directly targeted healthcare providers through their vendors.
Data breaches expose patient records. This can lead to large fines and expensive lawsuits. The average cost of a healthcare data breach is almost $10 million, which is a big financial problem.
Even vendors thought to be low risk have caused serious issues. For example, a 2016 breach at Banner Health exposed 3.7 million patient records through a food court payment system. Another case in 2021 was a ransomware attack on Eye Care Leaders, which affected millions of patient records and led to settlements over $4 million.
If vendors fail, important services can stop. For example, a cyberattack on vendors may cause electronic health records or diagnostic tools to go offline. In 2024, a cyberattack on Change Healthcare, a big third-party provider, caused delays and problems across the healthcare system in the U.S.
Problems with supply chains, like vendor bankruptcy or late shipments, directly affect the availability of medicine, medical supplies, and equipment upkeep. These issues can stop work and risk patient care.
Healthcare organizations must follow strict rules like HIPAA (Health Insurance Portability and Accountability Act). If vendors do not follow these laws, healthcare providers face legal action, big fines, and damage to their reputation.
Managing vendor compliance is very important but hard. Many healthcare organizations find it difficult to track if thousands of vendors and even subcontractors follow all regulations.
Problems from vendors can cause direct financial losses and long-term costs. Besides paying for data breaches, organizations may lose money when services stop, face higher insurance costs, and pay to fix problems and notify customers.
A MetricStream survey showed that 21% of organizations had risk problems from third parties. Also, 25% reported losing more than $10 million because of vendor failures or breaches.
Public trust is key in healthcare. A data breach or service failure tied to a vendor can make patients lose confidence. Bad news can stop new patients from coming and make it hard to work with insurers and payers.
Because of these risks, healthcare organizations must carefully check how important each third-party vendor is to patient care and operations. Important factors are:
By sorting vendors this way, healthcare managers can focus on watching the ones that matter most.
Before hiring vendors, healthcare organizations do full assessments. They check:
This helps find any weaknesses or problems before adding new vendors.
Contracts protect organizations by setting clear rules about:
Healthcare groups should include Business Associate Agreements (BAAs) when vendors handle protected health information (PHI) to meet HIPAA rules.
Watching vendors all the time helps find new risks after they are hired. This means:
A 2024 study showed that 61% of healthcare organizations had at least one vendor breach or cyber incident in the last year. This was a 49% rise from before. This shows why constant watching is needed.
Healthcare organizations and their vendors should work together on backup plans for problems. They should practice disaster recovery drills and have clear communication steps. This helps respond faster when something happens.
Plans should cover technical issues like system outages, supply chain breaks, and data breaches. Knowing each vendor’s role and backup plans helps reduce downtime and keep patient care going during emergencies.
Ending a vendor relationship safely is as important as managing ongoing ones. Steps include:
Internal audit teams play a key part in managing third-party risks in healthcare. They:
Good oversight means internal auditors and risk managers work closely to avoid repeating work while giving a full picture of risks.
With more and more vendor relationships, healthcare needs better technology. Vendor Risk Management (VRM) software helps automate vendor onboarding, risk checks, monitoring, and reports.
Key features of VRM tools:
Artificial intelligence (AI) also helps by:
Using VRM tools and AI helps healthcare groups work better, make fewer mistakes, and keep up with changing risks.
Healthcare groups must know that risks can come not only from direct vendors but also from subcontractors or even deeper vendor levels. For example, a cloud provider may use other companies for software or hardware.
Good risk management includes checking these extended relationships through better due diligence and ongoing risk reviews. VRM technology makes this easier.
Managing third-party vendor risks needs teamwork from many departments:
Working together improves risk awareness, simplifies processes, and sets clear responsibilities. This leads to better vendor risk controls.
Healthcare providers that use clear risk management plans and technology tools will be better able to protect patient information and keep operations and finances steady.
With more rules to follow and rising cyber threats aimed at healthcare, managing third-party vendors carefully is no longer optional. It is a key part of keeping healthcare safe, effective, and within the law.
Internal audit provides assurance that third-party risks are effectively managed. They evaluate third-party risk management programs, identify gaps, and ensure compliance with governance requirements.
Third parties can introduce compliance, data security, reputational, and legal risks, impacting the organization’s operational health and financial stability.
Collaboration between auditors and risk managers enhances third-party risk evaluation, avoids redundancies, and provides a holistic view of the enterprise’s risk profile.
Internal audit can identify critical third parties, assess risk management programs, evaluate compliance with governance, conduct objective assessments, and advise on performance improvements.
Internal audit activities include reviewing controls and policies, overseeing the third-party lifecycle, conducting assessments, and ensuring adequate monitoring of third-party compliance.
Organizations should align their due diligence processes and controls with the risks posed by third parties, conducting thorough research based on risk levels.
This clause allows organizations to ensure compliance with regulations and internal standards, providing a mechanism to regularly assess third-party performance.
By demonstrating the robustness of third-party risk management processes and highlighting concerns with recommendations for improvement, they build management’s confidence.
Regulatory compliance ensures that organizations adhere to legal standards while managing third-party risks, protecting against potential fines and reputational damage.
High-risk third-party relationships can expose organizations to significant risks; thus, they require more frequent monitoring and in-depth evaluation to mitigate vulnerabilities.
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