This article has been written by Anushaka Sharma, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

Before entering into any activity with another person that involves some kind of promises or obligations, from either side, it is essential to take the precautionary route of a written agreement between the two involved parties. Deceptions and frauds in such official relations are often the result of poor choices in terms of carrying out such agreements. The involved parties often repent such decisions once things go haywire. Fortunately, this is not a dead-end problem that cannot be solved. Drafting provides the perfect solution to a set of unorganised commitments from the end of both parties, a strong assembly in the form of a legally binding agreement. 

Apart from providing a structure to the obligations and duties of the parties involved in a transaction, drafting plays a huge role in furnishing accountability in cases of high priority agreements such as the ones involving businesses, multinational companies, the education industry, health care industry, etc. In this article, we are specifically going to deal with one of the very essential agreements of the healthcare industry i.e. the agreement between a hospital and a pharmacy. 

Through this article, the author will be shedding light upon the importance of sound agreements in the healthcare industry. Further, narrowing it down to the agreement between a hospital and a pharmacy, the author will be discussing the purpose and drafting procedure of this agreement by explaining the essential boilerplate terms of this agreement in great detail. 

Importance of agreements in the healthcare industry

Agreements as defined by Section 2(e) of the Indian Contract Act, 1872 –

“Every promise and every set of promises, forming the consideration for each other is an agreement.”

In important industries like health care, it is imperative for the parties involved to enter into a written agreement that clearly states their visions and responsibilities. Not only does it safeguard the interests of both parties but it also promotes a sense of accountability in such arrangements. Especially in the healthcare industries, where the stakes are high and often the considerations are financially higher and impactful to others, legally sound agreements play a huge role to help the parties reach their desired outcome through a hassle-free process. One of the most important requirements that need to be taken care of is to check whether the terms in the agreement are in tune with the current regulations and compliances in the specific industry. 

Some often entered into agreements in the healthcare industry 

• Physician employment contract,
• Management services arrangement,
• Healthcare contract management software,
• Technology licensing,
• Purchased services agreements,
• Employee benefits arrangements,
• Supervision agreements,
• Partnership agreements with other organisations,
• Medical directorship arrangement, and
• Recruitment of a physician….etc.

(This list is not exhaustive as the agreements entered into in the healthcare industry are wide-ranging and ever-innovative.)

Purposes of a  hospital and pharmacy agreements 

The role of a pharmacy in our healthcare does not need an explanation. It is the most foundational pillar of the medicinal industry. Right from strict supervision of the products (medicines) in terms of quality and compliance, enlightening doctors about the consequences of various medicines to keeping the most genuine interest of the patient at their hearts, pharmacies handle a major chunk of the work that goes into building a sound healthcare system. 

Oftentimes, hospitals in order to ensure great quality of medicines, healthcare advice as well as for building better policies can turn to pharmacies to avail their services on the hospital premises. 

Another very frequently faced reason is a lack of pharmacy coverage in the surrounding area of some hospitals. In such cases, to ensure safety, efficiency, and quality of services, hospitals often enter into such agreements with a particular pharmacy which can then lend its services to the same. Now that we understand the “why” behind such agreements, we can move on to the essential aspect of drafting such agreements. 

Drafting of an agreement between a hospital and a pharmacy

In order to draft an accurate agreement between a hospital and a pharmacy, a sound knowledge of the essential terms of this agreement is very important. We will specifically focus on the boilerplate clauses of these agreements which can also be defined as the general clauses that are often found in such agreements, mostly towards the beginning and the end of the agreements. 

Boilerplate clauses of a hospital-pharmacy agreement

Some of the most essential boilerplate clauses in this agreement are as follows- 

Effective date clause

• This is written right at the start of the agreement, clearly stating the name and details of the parties and the date at which the agreement was entered into. 

Sample clause

This Agreement is being entered on the 27th day of July, 2021, by and between a branch of Axis Hospitals, situated in 12/4 Bandra West, Mumbai, 400050 (hereinafter referred to as Party A) and the Sunrise Pharmacy, whose principal place of business is at 23/4, Juhu, Mumbai,400049 (hereinafter referred to as Party B). 

Recitals clause

• The recitals clause also called the “whereas” clause is generally written after the effective date clause to give the parties a summarized overview of the purpose behind entering into the contract. It further clearly lays down the intention of each other behind entering into the agreement. 

Sample clause

WHEREAS Party A has identified the lack of coverage in terms of a good pharmacy in the immediate surroundings of the hospital premises and it intends to make up for this lack by availing the services of a pharmacy that can provide a timely, safe, and excellent quality in terms of care to be provided to the patients.

WHEREAS Party B has agreed to offer its services to Party A by sending a Chief Pharmacist and its skilled staff to the premises of Party B.

WHEREAS Party A and Party B have agreed that by entering into this agreement- i) the lack of coverage in terms of pharmacy faced by Party A can be eliminated; ii) Party B can benefit in terms of remuneration as decided by the parties in this agreement. 

THEREFORE, Party A and Party B will be agreeing to the following obligations listed in this agreement, hereon:

Interpretation/ definition clause

• This clause is generally added in such agreements where there is scope for some technical words being misunderstood by either of the parties. In the agreement we are dealing with, that is being entered between a hospital and pharmacy, there are some terms that need a separate definition attached to them to avoid misuse or confusion later on. For example, terms like protected health information that refers to sensitive information concerning a patient is an important term that needs specification and interpretation to steer clear of any misuse/ confusion later on.

Sample clause 

• Definitions :

i) “PROTECTED HEALTH INFORMATION” or “PHI”- This refers to any past, present or future information regarding the mental health of any patient that is being provided to Party B by Party A. 

Term

•  One of the most essential clauses of this agreement is the term clause which has to very clearly state the duration of the agreement between the two concerned parties.

Sample clause

Unless stated otherwise in this agreement, this agreement will be in effect for a duration of three (3) years, commencing on 27th of July 2021 and ending on 27th of July 2023.

Costs/ expense clause

• This clause has the role of clearly stating the expense that will be paid to a specific party for a particular job. In the case of a hospital-pharmacy agreement, terms specifying the discharge of separate duties and obligations when it comes to payments are necessary.

Sample clause

Charges for Party A-

Party A agrees to pay Party B an initial monthly fee of Rs. 3 lacs, per annum. 

Party A holds the right of billing for all the concerned departments that render services to its patients. The final consent for any decision of purchasing new services/products for any department lies with Party A.

Remedies

• The remedy clause acts as a protective clause for both the parties and safeguards them against pitfalls that may come into the light, later on. In a hospital-pharmacy agreement, it becomes essential for parties to have some protective remedies, readily mentioned in the agreement, to protect their name and credibility in the healthcare industry. 

Sample clause

INDEMNIFICATION- 

Party A agrees to indemnify all the members working with Party B against any act, claim, demand, judgment, settlement, etc. that is a result of the negligence or actions of Party A. Any expense that is to be paid due to the above actions will not be paid by Party B. 

Party B agrees to indemnify all the members working with Party A against any act, claim, demand, judgment, settlement, etc. that is a result of the negligence or actions of Party B. Any expense that is to be paid due to the above actions will not be paid by Party A. 

Governing law and jurisdiction clause 

• This clause acts as a great safeguard against misuse or fraud by either of the parties in the agreement. As per this clause, the parties agree that a particular country’s law governs the terms of their agreement and that their agreement falls under the jurisdiction of which court in a particular country.

Sample clause

The terms of this Agreement shall be governed and construed as per the law of India. Both Party A and Party B, agree that any dispute that arises between them during the course of this agreement will fall under the jurisdiction of Indian courts of law.

Conclusion

Before we consider this as an exhaustive list of terms for an agreement between a hospital and a pharmacy, it is important for us to remember that the above-mentioned clauses are not exhaustive in nature as they are only the standard or the boilerplate clauses that should be there is an agreement between a hospital and a pharmacy. There are many more clauses that can be added to this agreement but those clauses are based on the specific background of the parties, interested in forming an agreement and other such circumstances, hence those are called the operative clauses of the agreement. The above-mentioned boilerplate clauses act as standard and essential terms of this agreement between a hospital and a pharmacy which can act as guards against any kind of fraud or dispute between the parties, along the road. 

References

• http://www.pharmabiz.com/ArticleDetails.aspx?aid=92371&sid=21
• https://blog.ipleaders.in/how-to-draft-quality-agreement-for-pharmaceutical-company/
• https://www.pandadoc.com/pharmacy-services-agreement-template/

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