Third-Party Risk Management vs. Vendor Management: What Healthcare Leaders Need to Know
Post Summary
Third-party risk management (TPRM) and vendor management (VM) are distinct but interconnected practices that healthcare leaders must understand to protect patient data and ensure smooth operations.
- TPRM focuses on identifying and mitigating risks across all external partnerships, including indirect relationships like subcontractors.
- VM deals with managing direct vendor relationships, ensuring contracts, performance metrics, and compliance standards are met.
Key Differences:
- TPRM addresses risks from all external entities (e.g., cloud providers, medical device manufacturers, subcontractors).
- VM focuses on direct vendors with contractual obligations (e.g., IT services, equipment suppliers).
Both are essential for safeguarding patient information, meeting regulatory requirements (e.g., HIPAA, FDA), and reducing vulnerabilities in the healthcare ecosystem.
Third-Party Risk Management in Healthcare
Third-party risk management (TPRM) in healthcare serves as a critical framework for reducing cyber threats that could endanger patient safety or the integrity of healthcare organizations. As healthcare systems grow more interconnected, TPRM tackles the intricate network of external relationships that these organizations rely on daily. Let’s explore what TPRM involves and how it strengthens cybersecurity in healthcare.
What Third-Party Risk Management Covers
TPRM addresses all external entities that interact with your healthcare organization’s data, systems, or operations. This includes digital partners like electronic health record (EHR) vendors, cloud service providers, and telehealth platforms, as well as physical service providers, supply chain partners, and even subcontractors hired by your third parties.
For example, medical device manufacturers whose products connect to hospital networks, billing companies managing financial data, and IT support contractors with administrative access all fall under TPRM’s scope. A security breach at any of these partners could compromise your organization’s systems and sensitive data.
Additionally, TPRM extends to fourth-party risks. If your cloud provider outsources data center management or your EHR vendor uses a third-party analytics company, those indirect relationships introduce additional vulnerabilities. Identifying and managing these risks is a key component of TPRM.
Main Goals of Third-Party Risk Management
The primary objectives of TPRM in healthcare include protecting patient data, ensuring uninterrupted operations, and meeting regulatory standards. This involves verifying that all third parties handling protected health information (PHI) adhere to strict security measures, such as robust encryption and access controls, while also ensuring they can sustain critical services during emergencies or cyberattacks.
At the heart of effective TPRM are risk assessments and continuous monitoring. Healthcare organizations must routinely evaluate the security practices of their third parties, keep track of changes in risk levels, and respond swiftly to new threats. This proactive approach helps uncover vulnerabilities before they can be exploited by cybercriminals.
By integrating risk management with vendor oversight, healthcare organizations can navigate the ever-changing landscape of external threats more effectively.
Regulatory Requirements for Third-Party Risk Management
Several regulations shape the requirements for TPRM in healthcare. HIPAA lays the groundwork, requiring covered entities to ensure that their business associates implement proper safeguards for PHI. The HITECH Act builds on this by extending HIPAA’s requirements to business associates and their subcontractors, creating a chain of accountability that healthcare organizations must oversee.
For organizations using connected medical devices, FDA regulations add another layer of complexity, mandating security measures throughout the devices’ lifecycles. State laws, like California’s CCPA, impose further requirements for protecting patient information, while standards from the Joint Commission call for rigorous oversight of external partners’ security protocols.
These regulatory frameworks highlight the importance of TPRM in maintaining a secure and compliant healthcare environment.
Vendor Management in Healthcare
Vendor management zeroes in on managing direct contractual relationships with vendors. While third-party risk management (TPRM) casts a wider net, vendor management hones in on partnerships that are critical to maintaining cybersecurity standards, particularly in the face of rising digital threats.
What Vendor Management Covers
Vendor management spans the entire lifecycle of a vendor relationship, from the initial selection process to the eventual termination of contracts. It involves working with entities that directly provide products or services to healthcare organizations. These vendors might include suppliers of medical equipment, pharmaceuticals, IT services, or other essential operational needs.
A key aspect of vendor management is contract oversight. This includes negotiating terms, setting clear service level agreements (SLAs), and defining performance metrics. The onboarding process is equally important, requiring organizations to verify vendor credentials, confirm insurance coverage, and ensure compliance with healthcare regulations before any services are rendered.
Unlike TPRM, which might address risks posed by indirect relationships, vendor management focuses exclusively on vendors with direct contractual ties. For instance, a company that manufactures medical devices for a hospital would fall under vendor management. On the other hand, a software provider used by an electronic health record (EHR) vendor for analytics would be addressed through TPRM.
Regular performance monitoring is another critical element. This involves assessing vendor quality, ensuring adherence to contract terms, and maintaining compliance with organizational standards. Metrics like delivery times, IT response rates, and product quality scores are commonly tracked to evaluate vendor performance.
Main Goals of Vendor Management
The overarching goals of vendor management revolve around maintaining service quality, controlling costs, and ensuring regulatory compliance. Healthcare organizations must ensure that vendors consistently meet quality standards while staying within budget constraints and adhering to legal requirements.
One of the primary goals is optimizing contracts. This involves negotiating terms that safeguard the organization’s interests while holding vendors accountable for delivering quality services. Contracts often include performance metrics, penalties for non-compliance, and provisions for adjustments when circumstances change.
Another focus is minimizing operational disruptions. Strong relationships with dependable vendors and contingency plans for potential failures are essential. With vendor-related cyberattacks increasing by over 400% in just two years [1], it’s critical to ensure that vendors’ security practices align with the organization’s standards.
Cost management is a constant challenge in healthcare. Effective vendor management helps by negotiating competitive pricing, monitoring performance to ensure value, and identifying opportunities for cost savings or service improvements.
Compliance monitoring forms the backbone of vendor management. Vendors handling patient data or providing clinical services must meet strict regulatory standards. This includes verifying certifications, ensuring adherence to protocols for handling protected health information (PHI), and conducting regular audits.
Regulatory Requirements for Vendor Management
Healthcare vendor management operates under a stringent regulatory framework that demands thorough documentation and oversight. For example, HIPAA mandates that vendors with access to PHI sign business associate agreements (BAAs) and implement safeguards to protect sensitive information.
But HIPAA is just the beginning. Vendor management also involves compliance with FDA standards for medical device manufacturers, Joint Commission requirements for clinical service providers, and various state-specific regulations. Organizations must ensure that vendors keep their certifications current and adhere to all relevant regulations throughout the duration of their contracts.
Audits and documentation are essential to verifying compliance. A Ponemon Institute study revealed that 66% of organizations experienced data breaches due to vendor security lapses, yet only 34% trusted that vendors would report breaches promptly [2]. This highlights the need for robust audit protocols and clear documentation.
Contracts with vendors must include specific terms addressing compliance, breach notification, and audit rights. These provisions ensure that organizations can monitor compliance, require prompt incident reporting, and terminate agreements if vendors fail to meet expectations.
Although nearly 80% of organizations have formal vendor risk assessment programs, about 30% lack dedicated staff for these tasks [3]. This gap underscores the need for specialized resources to oversee vendor relationships and ensure compliance with regulatory standards.
These vendor-specific controls are a vital part of the larger risk management strategies discussed earlier, helping healthcare organizations maintain secure and effective operations.
Third-Party Risk Management vs. Vendor Management: Side-by-Side Comparison
For healthcare leaders, understanding the distinction between third-party risk management (TPRM) and vendor management is essential. While TPRM addresses risks across all external relationships, vendor management zeroes in on direct contractual vendors [4][5]. This comparison unpacks their differences and shows how both contribute to a well-rounded risk strategy.
Main Differences and Similarities
| Aspect | Third-Party Risk Management | Vendor Management |
|---|---|---|
| Scope | Encompasses all external entities, including indirect relationships | Focuses exclusively on direct, contractual vendors |
| Focus | Broad, strategic evaluation of potential risks | Specific oversight of risks tied to individual vendors |
Both areas play a critical role in healthcare risk management, requiring strong documentation, ongoing assessments, and clear escalation processes to address potential threats effectively.
How Technology Supports Both Approaches
Technology bridges the gap between these two approaches, offering healthcare organizations an integrated way to manage risks. Platforms designed for risk management provide a unified view of all external relationships while allowing for focused vendor oversight.
AI-powered tools enhance efficiency by speeding up risk assessments, spotting emerging threats, and monitoring vendor compliance. Vendors can quickly complete security questionnaires, with automated tools summarizing evidence and documentation to cut down on administrative tasks.
Automated workflows, paired with human oversight, simplify routine assessments while ensuring critical decisions are carefully reviewed. Features like centralized dashboards, real-time alerts, and automated task routing enable quick responses to risks. By breaking down silos and offering scalable solutions, these technologies help healthcare organizations maintain strong oversight as their external networks grow more complex.
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Practical Steps for Healthcare Leaders
Healthcare leaders face the critical task of merging third-party risk management (TPRM) and vendor management to protect patient data and ensure smooth operations. Achieving this requires thoughtful planning, the right tools, and a commitment to continuous improvement.
How to Combine Third-Party Risk Management and Vendor Management
To streamline risk management, healthcare organizations should standardize risk assessments across all external partnerships. A cloud-based risk exchange platform can be a game-changer for this process [6].
This collaborative approach replaces the traditional, siloed evaluations conducted by individual hospitals. Instead, healthcare organizations can share insights and benefit from a collective knowledge base.
James Case, VP & CISO of Baptist Health, shared that this method allowed them to move away from spreadsheets and tap into a "larger community [of hospitals] to partner and work with," demonstrating how shared insights foster collaboration [6].
Another key step is unifying governance, risk, and compliance (GRC) teams under a single workflow. By automating the routing of assessment findings and critical tasks to the right stakeholders - including AI governance committees - organizations can respond more effectively to emerging risks [7].
This unified model also lays the groundwork for integrating advanced technology, which can further enhance risk management efforts.
Using Technology to Improve Risk Management
Technology plays a pivotal role in combining TPRM and vendor management. AI-powered platforms are particularly effective, reducing the time and resources needed for risk assessments while improving accuracy.
The benefits are tangible.
Terry Grogan, CISO of Tower Health, noted that implementing Censinet RiskOps reduced the number of full-time employees (FTEs) needed for risk assessments from five to two, enabling three FTEs to return to their primary roles. This shift allowed the organization to complete "significantly more assessments" with greater efficiency [6].
AI-driven tools simplify and speed up the assessment process. Vendors can complete security questionnaires in seconds, while automated systems summarize evidence, flag potential issues, and identify risks from fourth-party relationships. These platforms compile all relevant data into detailed risk reports, freeing up human experts to focus on strategic decisions [7].
However, human oversight remains essential. While automation handles tasks like evidence validation and policy drafting, risk teams maintain control through configurable rules and review processes. This ensures automation supports decision-making without replacing critical human judgment [7].
A centralized risk hub is another essential component. By aggregating real-time data into user-friendly dashboards, organizations can monitor policies, risks, and tasks in one place. This setup enables teams to address issues promptly and maintain continuous oversight [7].
Once technology streamlines these processes, the focus shifts to ongoing monitoring and adaptation.
Ongoing Monitoring and Improvement
Risk management isn’t a one-and-done effort. It requires continuous monitoring and adjustments to address new threats. Healthcare organizations must establish processes for routinely reassessing vendors and third parties, especially as cybersecurity threats evolve.
Benchmarking against industry standards is a powerful way to drive improvement.
Brian Sterud, CIO of Faith Regional Health, emphasized that benchmarking helped them "advocate for the right resources and ensures we are leading where it matters," showing how data-driven insights can guide strategic decisions [6].
By comparing their performance to industry peers, organizations can identify gaps, enhance their cyber defenses, and justify investments in cybersecurity infrastructure.
As AI continues to grow in healthcare, particularly in clinical decision-making, organizations must prioritize AI governance. Establishing dedicated committees and implementing robust policies are key steps. AI-powered tools can help organizations assess risks tied to AI systems, enforce policies, and align with frameworks like the NIST AI Risk Management Framework [7].
Clear incident response plans are also critical. Regularly testing these procedures ensures they remain effective as external networks expand and grow more complex.
Finally, healthcare organizations must stay aligned with evolving regulations. This includes adhering to HIPAA requirements, state privacy laws, and new federal cybersecurity mandates. By regularly updating risk management processes, organizations can stay compliant and better prepared for future challenges.
Conclusion: Why Healthcare Organizations Need Both Approaches
Healthcare organizations can’t afford to treat third-party risk management (TPRM) and vendor management as separate silos. Vendor management zeroes in on operational relationships and contract performance, while TPRM casts a wider net, addressing the cybersecurity, compliance, and operational risks tied to all external partnerships.
The numbers tell a sobering story: 55% of healthcare organizations reported third-party breaches in the past year, with the average cost of a healthcare data breach hitting $9.77 million[8]. These figures highlight the critical role of integrated risk management - not just for financial stability but for safeguarding patient safety.
TPRM acts as the umbrella discipline, covering all external risks. It naturally extends beyond vendor management to include suppliers, contractors, partners, and other third parties[9]. This broader scope ensures no risk source is overlooked, which is critical as healthcare systems grow more interconnected.
Regulatory changes are also pushing healthcare leaders toward a unified approach. Updates to the NIST Cybersecurity Framework 2.0 and the proposed revisions to the HIPAA Security Rule emphasize the need for robust processes to identify and mitigate third-party risks[8]. Meeting these demands requires healthcare organizations to establish clear onboarding protocols, assign specific risk management roles, and conduct thorough precontract security evaluations.
Modern platforms demonstrate how integration can be achieved. By addressing the complexity and scale that manual processes can’t handle, these tools enable centralized workflows that bring TPRM and vendor management under one cohesive system.
To move forward, healthcare organizations need to align risk assessments with data sensitivity, standardize evaluations across all external partnerships, and implement continuous monitoring mechanisms[8]. Those that succeed in merging TPRM and vendor management will build resilient frameworks capable of protecting patient data and maintaining operational strength in an increasingly challenging risk landscape.
The real opportunity lies in blending these approaches to create strategies that not only shield patient care but also ensure operational resilience.
FAQs
How can healthcare organizations combine third-party risk management and vendor management to better protect patient data?
Healthcare organizations can strengthen the protection of patient data by merging third-party risk management (TPRM) and vendor management into a cohesive strategy. This involves performing routine vendor risk assessments, maintaining ongoing monitoring, and enforcing strict access controls to safeguard confidential information.
When paired with strong cybersecurity practices - like data encryption, adherence to healthcare regulations such as HIPAA, and proactive identification and resolution of vulnerabilities - these efforts can significantly reduce risks linked to third-party partnerships. Taking a well-organized approach ensures sensitive patient data stays protected while meeting industry compliance standards.
How does technology improve third-party risk and vendor management in healthcare?
Technology has become a key player in improving third-party risk and vendor management within the healthcare sector. It allows for real-time monitoring, automated risk assessments, and simplified workflows, enabling organizations to spot vulnerabilities and take action before issues escalate.
With tools like integrated risk management systems and cybersecurity platforms, healthcare providers can maintain compliance, cut down on manual tasks, and react quickly to new threats. These tools don’t just make operations smoother - they also bolster the security and reliability of healthcare IT systems.
What regulations should healthcare organizations follow to manage third-party and vendor risks effectively?
Healthcare organizations in the United States face stringent regulations when it comes to managing third-party and vendor risks, especially in protecting sensitive health information. One of the most critical is HIPAA (Health Insurance Portability and Accountability Act), which requires organizations to establish written agreements with vendors, implement strong security protocols, and continuously monitor any third parties that handle protected health information (PHI). Beyond HIPAA, compliance with federal cybersecurity standards and state-specific laws is also essential.
In addition to regulatory requirements, frameworks like ISO 27001 offer a structured way to assess and address information security risks. By conducting regular due diligence, reviewing vendor performance, and monitoring third-party compliance, healthcare organizations can better protect sensitive data and ensure they meet regulatory standards in increasingly complex IT environments.
