Understanding vendor lock-in risks in healthcare

Vendor lock-in—making customers dependent on a vendor's products and services to the extent that switching becomes prohibitively expensive or difficult—is a concern across the healthcare industry, particularly when intertwined with HIPAA compliance requirements and patient data protection obligations.

As Pro Abos notes in Vendor Lock-In and Interoperability: Importance of interoperability among cloud services, "As organizations increasingly rely on cloud solutions, the risk of becoming dependent on a single vendor can lead to significant challenges, including reduced flexibility, increased costs, and limited innovation.” When healthcare organizations become trapped in restrictive contracts, they face financial constraints, operational limitations, and compliance complexities that can directly impact patient care continuity.

Understanding vendor lock-in in healthcare context

Dr. Varin Khera defines vendor lock-in as "the situation where an organization becomes over-reliance on a single vendor to provide its IT services without the ability to move to another vendor because of various constraints (e.g., technology, cost, time) that make the shift unfeasible.” 

Vendor lock-in in healthcare manifests in various forms, from Electronic Health Record (EHR) systems that make data migration virtually impossible to cloud infrastructure contracts that create technical and financial barriers to switching providers. Unlike other industries where vendor changes might involve temporary inconvenience or cost, healthcare vendor lock-in can directly impact patient care continuity and regulatory compliance.

The financial implications are severe in healthcare settings. As noted in Cloud Vendor Lock-In: Identify, strategies, mitigate, "Vendor lock-in can lead to increased costs over time. Once a business is dependent on a particular vendor, the provider might raise prices, knowing that switching to another vendor is costly and complex.” For healthcare organizations operating on tight margins while maintaining quality patient care, these costs can force difficult decisions between technology investments and patient services.

A challenge identified by Abos is that "In multi-cloud environments, data can become siloed across different cloud providers, making it difficult to have a unified view. This fragmentation can lead to inconsistent data sets and hinder effective decision-making.” In healthcare contexts, this fragmentation can be dangerous, as incomplete or inconsistent patient data can lead to medical errors, delayed diagnoses, or compromised treatment decisions.

As research by Opara-Martins, Sahandi, and Tian demonstrates, "The vendor lock-in problem in cloud computing is the situation where customers are dependent (i.e. locked-in) on a single cloud provider technology implementation and cannot easily move in the future to a different vendor without substantial costs, legal constraints, or technical incompatibilities.” This definition applies directly to healthcare technology environments, with higher stakes due to patient safety considerations.

Healthcare organizations, often focused on immediate functionality needs and implementation timelines, may overlook long-term implications of contractual terms and technical architectures that gradually increase switching costs. As Dr. Khera observes, "Vendor lock-in can happen when using a service (e.g., cloud computing service), software, or a hardware product, and the customer is forced to remain using it despite being ineffective, having low quality, or costing more.”

Case study: The Change Healthcare cyberattack

The February 2024 cyberattack on UnitedHealth Group's Change Healthcare unit shows how vendor lock-in creates systemic vulnerabilities that can affect entire healthcare systems.

When vendor lock-in creates industry-wide paralysis

On February 21, 2024, Change Healthcare issued a brief statement that some of its applications were "currently unavailable." By afternoon, the company acknowledged a "cybersecurity" problem that would escalate into a healthcare industry crisis. The attack, reportedly carried out by the notorious ransomware group ALPHV (also known as Blackcat), exposed the dangerous concentration of critical healthcare infrastructure in the hands of a single vendor.

Change Healthcare's role in the U.S. healthcare system shows the extreme vendor dependence that has developed across the industry. The company processes approximately 44% of all funds in the country's healthcare system and handles "14 billion clinical, financial, and operational transactions annually" according to its own website. This concentration created the type of single point of failure that healthcare organizations must actively avoid.

The immediate impact was widespread. As Saad Chaudhry, chief digital and information officer at Luminis Health, observed, "It's small ripple pools that will get bigger and bigger over time, if it doesn't get solved." Pharmacies couldn't process prescriptions, hospitals stopped receiving payments, and physicians lost the ability to verify patient insurance coverage. The American Hospital Association reported that many of its members weren't getting paid and that doctors couldn't check whether patients had coverage for care.

Healthcare's interconnected vulnerability

The attack revealed the interconnected nature of healthcare's vendor dependencies. CommonWell, an institution that helps health providers share medical records containing information on 208 million individuals as of July 2023, relied on Change Healthcare technology and "has been disabled out of an abundance of caution," according to Courtney Baker, CommonWell's marketing manager.

This interconnectedness amplifies the risk of vendor lock-in in healthcare environments. When a single vendor controls critical infrastructure components, a compromise doesn't just affect that vendor's direct customers—it goes through the entire system of interconnected healthcare services. Providers found themselves unable to access patient records, process claims, verify insurance coverage, or complete routine administrative functions essential to patient care delivery.

The patient safety imperative

Unlike other industries where vendor outages might cause inconvenience or financial loss, healthcare vendor failures directly threaten patient safety. Aaron Miri, chief digital and information officer at Baptist Health in Jacksonville, Florida, stated bluntly: "Patients are dying because of this." Research supports this assessment—a University of Minnesota study found a nearly 21% increase in mortality for patients in ransomware-stricken hospitals.

The Change Healthcare attack forced healthcare providers to resort to manual, paper-based processes, slowing care delivery and increasing the risk of medical errors. Patients were routed to different pharmacies, prescription processing was delayed, and medical information became inaccessible. The attack showed how vendor concentration creates operational risks and genuine threats to human life.

The innovation and flexibility challenge

Healthcare organizations trapped in vendor lock-in situations face barriers to innovation and technological advancement. As highlighted in Cloud Vendor Lock-In: Identify, strategies, mitigate, "Businesses who are dependent on a single cloud vendor's technology stack may find that their options for flexibility and innovation are constrained. This dependence may make it more difficult for a business to implement cutting-edge tools and technologies that the vendor does not support, which could hinder innovation and impede the organization's progress in technological improvement".

This constraint is particularly problematic in healthcare, where technological advancement in areas like telemedicine, artificial intelligence, and precision medicine requires organizations to remain adaptable. When locked into a single vendor contract, healthcare organizations may miss opportunities to implement technologies that could improve patient outcomes or operational efficiency simply because their current vendor doesn't support these innovations.

The HIPAA compliance complexity layer

HIPAA's Privacy Rule and Security Rule establish strict requirements for how PHI must be handled, transmitted, and protected, requirements that extend to all business associates who handle this information on behalf of covered entities.

The compliance challenge is compounded in multi-vendor environments. As Abos observes, "Navigating compliance across multiple jurisdictions and cloud providers can be complex. Organizations must ensure that they meet various regulatory requirements, which may differ significantly between regions and providers.” For healthcare organizations, this complexity extends beyond jurisdictional differences to include varying approaches to HIPAA implementation, security controls, and audit requirements across different vendors.

Furthermore, Abos notes that, "The absence of standardized data governance frameworks across different cloud providers complicates the implementation of governance practices. Organizations may struggle to develop consistent policies and procedures, leading to inefficiencies and increased risk.” In healthcare, this lack of standardization can create compliance risks, as organizations must ensure consistent HIPAA implementation across all their technology vendors while maintaining the flexibility to adapt to changing regulatory requirements.

When healthcare organizations enter into vendor relationships involving PHI, they must establish Business Associate Agreements (BAAs) that clearly define each party's responsibilities for HIPAA compliance. These agreements become important  documents that can either facilitate future vendor transitions or create additional barriers to switching.

Operational risks in healthcare settings

The operational risks associated with vendor lock-in are more in healthcare environments where system reliability directly impacts patient care. As emphasized in Cloud Vendor Lock-In: Identify, strategies, mitigate, "Any issues related to the vendor's financial health, technical robustness, or continuity can pose significant risks to the company's operations. Technical failures, such as system outages or security breaches, can directly hinder a company's ability to deliver its products or services, resulting in lost revenue and tarnished reputation.”

In healthcare contexts, these operational disruptions can have life-threatening consequences. When a healthcare organization's EHR system experiences an outage, clinical staff may lose access to patient information, medication histories, and treatment protocols. Laboratory systems failures can delay diagnostic results, while imaging system disruptions can prevent urgent radiological studies. The dependency on a single vendor amplifies these risks, as there may be no immediate alternative systems available to maintain continuity of care.

Common lock-in mechanisms in healthcare technology

A  challenge identified in the business perspective research is that "Limited studies exist to analyse and highlight the complexity of vendor lock-in problems in the cloud environment. Consequently, most customers are unaware of proprietary standards which inhibit interoperability and portability of applications when taking services from vendors.” This awareness gap is pronounced in healthcare, where technical decisions are often made by clinical leaders who may not fully understand the long-term technological implications.

The challenge of data migration is complex in healthcare. As noted in Cloud Vendor Lock-In: Identify, strategies, mitigate, "Moving data across cloud providers is a costly and technically challenging process. The main causes of the problems are the sheer amount of data involved and the incompatibility of the data formats, both of which greatly raise the possibility of data loss or corruption during transfer.” In healthcare, data loss or corruption during migration could result in incomplete patient records, lost medical histories, or compromised clinical decision-making.

FAQs

How do vendor lock-in risks differ between small clinics and large hospital systems?

Smaller clinics may face proportionally higher operational disruption due to limited IT resources and fewer alternative vendors.

Can vendor lock-in affect healthcare insurance companies as well as providers?

Yes, insurers relying on a single claims processing or analytics vendor can experience similar disruptions and cost escalations.

Are there strategies for measuring the “lock-in risk” of a healthcare IT system?

Risk can be assessed through vendor dependency metrics, migration costs, and operational impact analyses.

How does vendor lock-in impact telemedicine and remote care adoption?

Lock-in can restrict integration with new telehealth platforms, limiting service expansion and innovation.