The Ultimate Vendor Risk Management Guide For Healthcare

The healthcare industry stores an abundance of sensitive information and relies on third-party vendors for critical business services, two factors that make the sector a prime target for cyber attacks. In 2022, 707 data breaches compromised 500 or more patient accounts, according to report records from the Department of Health and Human Services’ Office For Civil Rights (OCR).

Establishing an effective vendor risk management program is the best way healthcare organizations can prevent data breaches, defend sensitive data, and manage new vulnerabilities and security risks that arise via their third-party ecosystem.

Keep reading to learn more about the benefits and challenges of vendor risk management and discover how your organization can develop a comprehensive VRM program to prevent disruptions and improve its security posture.

Learn how UpGuard streamlines Vendor Risk Management >

Vendor Risk Management & Healthcare

Vendor risk management (VRM) is the process of managing, monitoring, and mitigating security risks that arise through partnerships with third-party service providers, vendors, and cloud solutions. Comprehensive VRM programs cover new vendors and existing vendor relationships.

The healthcare industry relies on VRM strategies to:

• Ensure vendors comply with ongoing regulatory standards (HIPAA, GDPR, ISO, HITRUST, etc.)
• Identify specific risks associated with outsourcing to individual vendors
• Tier vendors based on the level of inherent risk they present to the organization
• Collaborate with vendors to develop incident response plans‍
• Install robust information security controls to protect patient or customer data
• Perform comprehensive security audits to manage ongoing vendor relationships‍
• Establish baseline protocols and KPIs to assess vendor performance
• Establish protocols to terminate vendors safely

Recommended Reading: What is Vendor Risk Management (VRM)? 2025 Edition

VRM vs TPRM & SCRM

Cybersecurity personnel sometimes use VRM, Third-Party Risk Management, and supply chain risk management interchangeably. However, these three terms refer to a slightly different process, each with independent motivations and strategies.

• Third-party Risk Management (TPRM): TPRM is the method of managing all forms of third-party risk. This process includes VRM, SCRM, and other techniques to protect an organization against the security risks of various third-party relationships.
• Supply Chain Risk Management (SCRM): A collection of strategies and controls used to anticipate, mitigate, and prevent supply chain disruptions. The process focuses explicitly on an organization’s extended product, material, and service provider network.
• Vendor Risk Management (VRM): VRM is one process of TPRM that uses security questionnaires, risk assessments, continuous monitoring, and other strategies to identify potential risks, mitigate security breaches. VRM program's also support secure vendor network scaling.

All three processes are indisputably linked and essential to the health of an organization’s cybersecurity program. For example, an organization cannot develop a holistic TPRM program without addressing SCRM and VRM independently.

Learn how to implement an effective VRM workflow >

What are the Benefits of VRM?

Each third-party vendor in an organization’s ecosystem presents unique risks and challenges. Healthcare organizations must develop VRM programs to identify, understand, and manage these risks.

The main goal of VRM is to protect an organization’s security posture and prevent third-party security incidents. VRM also helps organizations manage third-party risks as they arise throughout the vendor lifecycle.

Most VRM programs are concerned with six types of risk:

• Cybersecurity Risk: Risk or potential for cyber attacks, data breaches, and other cyber incidents
• Operational Risk: Risk of a third-party vendor causing a disruption, product delay, or another event that harms business continuity
• Compliance Risk: The potential for a vendor to cause an organization to violate industry regulations or compliance requirements
• Reputational Risk: The risk that a third-party vendor will negatively impact an organization’s public reputation or brand
• Financial Risk: The potential for a vendor to negatively impact an organization’s financial stability or success
• Strategic Risk: The risk a third-party vendor poses to an organization’s business objectives and goals

By developing a robust VRM framework to manage all six types of risk, healthcare organizations will inherit the following benefits:

• Streamlined vendor procurement and onboarding workflows
• Enhanced vendor due diligence and risk assessment processes
• Comprehensive regulatory compliance
• Minimized risk exposure
• Enhanced data protection
• Improved business continuity and incident response
• Improved vendor relationships and third-party performance
• Expanded fourth-party risk insight and awareness

Recommended Reading: Why is Vendor Risk Management Important?

What are the Challenges of VRM Implementation?

While vendor risk management is essential for modern healthcare organizations, it can also be troublesome to install into existing cybersecurity programs for many reasons, including lack of funding, low-risk awareness, and lack of stakeholder support or acknowledgment. To understand how VRM can be applied to different vendor cyber risk contexts, refer to this list of Vendor Risk Management examples.

Here are the three main challenges of VRM implementation and how to overcome each:

Lack of Funding

Problem: The organization lacks dedicated funding for VRM resources, training, and program development.

Solution: Create an investor report that details the intricacies of third-party risk, the impact data breaches and other cyber incidents can have, and the value VRM can provide. An excellent place to start is the average cost of a data breach.

Lack of Awareness

Problem: The organization is unaware of the factors affecting its security posture and the risks specific vendors present.

Solution: Utilize a comprehensive vendor risk management solution, like UpGuard, to identify and assess risks, tier vendors based on criticality, and streamline workflows to improve security posture and cyber hygiene.

Lack of Stakeholder Support

Problem: The organization’s senior stakeholders and/or board of directors are unaware of the benefits VRM can provide.

Solution: Develop a stakeholder report detailing the benefits a VRM program can provide to each department and organization. Include operational metrics and KPIs to measure VRM's impact over the next quarter, year, and other notable periods.

The Biggest Third-Party Cybersecurity Risks in Healthcare

Before developing a VRM program for your organization, it’s essential to understand what cyber threats affect the healthcare industry. By understanding these threats, you can better anticipate what vendor risk management processes will benefit your organization most.

Phishing

Phishing scams are social engineering attacks that use illegitimate websites and email accounts to trick victims into providing user information. Phishing is the most common cyber attack deployed worldwide.

• 3 billion phishing emails are sent every day (ZDNET, 2021)
• 84% of companies experienced at least one phishing attempt in 2021 (State of the Phish, 2022)

Ransomware

Ransomware is a type of malware (malicious software) that holds an organization’s data or credentials hostage until the organization pays the requested ransom. Cybercriminals commonly deploy ransomware against healthcare organizations to access critical systems and data.

• 623 million ransomware attacks were deployed worldwide throughout 2021 (AAG, 2023)
• 24% of all cyber attacks involve ransomware (Verizon, 2023)

Data Breaches

A data breach is any security incident where sensitive information is accessed, transmitted, copied, or stolen by an unauthorized party. Data breaches can harm an organization’s financial stability, reputation, and business continuity. The healthcare industry stores valuable patient information, which makes it a popular target for cybercriminals.

• On average, a single data breach costs a healthcare organization $10.93 million (IBM, 2023)
• The average cost of a data breach in the healthcare sector has increased by 53.3% since 2020 (IBM, 2023)

Recommend Reading: Biggest Cyber Threats in Healthcare (Updated for 2025)

How to Create a Vendor Risk Management Program

Healthcare organizations can create a vendor risk management program by adhering to the following steps and recommendations.

Drafting Vendor Risk Management Documentation

It’s common practice for organizations to outline their VRM standards, expectations, and goals within their information security policy. Organizations without existing VRM documents can start by developing a broad outline of their VRM identity.

As the VRM policy becomes more defined, the organization’s compliance team can add specific details to standardize procedures across departments, vendor types, and their third and fourth-party ecosystems.

An organization’s finalized VRM documents should include:

• Specific stakeholder roles and responsibilities
• Vendor onboarding and due diligence standards
• Vendor tiering or classification criteria
• Audit cadence
• Reporting expectations

The best VRM documents reflect an organization’s vendor inventory, security posture, and risk tolerance. An organization’s risk management team should consistently update its VRM documents as changes occur throughout its operational lifecycle. Organizations should revisit their VRM documents annually and after any significant changes in their vendor ecosystem.

Creating a Vendor Inventory

Organizations can enhance risk awareness by developing a comprehensive vendor inventory. A complete vendor inventory should encompass all current third-party vendors, recognized fourth-party suppliers, and past vendor relationships, especially those with previous access to sensitive data or critical systems.

The vendor inventory should also organize current vendors based on the risk level they present to the parent organization. Organizations can tier their vendors manually or by using security questionnaires. Examples of tiering include:

• Critical-Risk Vendors: Disaster-level impact on operations; access to sensitive data
• High-Risk Vendors: High impact on operations; access to sensitive data
• Medium-Risk Vendors: Some impact on operations; no access to sensitive data
• Low-Risk Vendors: Little effect on operations; no access to sensitive data

At this stage, organizations can also create a risk matrix to include in VRM reports—a risk matrix charts vendors based on their criticality and potential for risks to occur.

Establishing Vendor Procurement Criteria

Organizations can ensure all third-party vendors meet their standards and expectations by vetting vendors with selection criteria. When an organization is procuring vendors, it should assess all vendors using the following criteria:

• Service Quality
• Pricing
• Public Reputation
• Compliance Standards

Performing Vendor Due Diligence

Vendor due diligence is crucial to the success of an organization’s VRM program. Due diligence refers to the process of screening potential third-party vendors before onboarding. During due diligence, organizations should assess a vendor’s security posture, ensure compliance with industry standards and regulations, and validate certifications.

While vendor due diligence starts before onboarding, it’s also vital for organizations to develop ongoing monitoring practices to inspect vendors throughout the vendor lifecycle.

Best practices for vendor due diligence include:

• Sending annual vendor risk assessment questionnaires
• Requesting updated documentation (business continuity plans, incident response plans, information security policies, etc.)
• Evaluating security posture using accurate security ratings
• Assessing the security posture of all vendors regularly

Defining Vendor Contract Standards

Organizations often manage third-party relationships with a vendor contract or service-level agreement (SLA). SLAs provide organizations peace of mind and precisely define a third-party relationship's scope, duration, and conditions.

A comprehensive SLA will include the following elements:

• Agreement Overview: List of services, duration of agreement, and scope
• Stakeholder Information: Roles, responsibilities, and points of contact
• Organization Obligations: Pay amount and frequency
• Vendor Obligations: Actions the vendor has agreed to take
• Performance Metrics: Quality, defect rate, and security risk
• Cancellation Conditions: Vendor fails to meet specific goals, achieve metrics, etc.

Once an organization has defined its preferred SLA layout, it can create an SLA template to onboard new vendors efficiently.

Developing a Vendor Audit Cadence

How often will an organization audit its existing vendors? Personnel should define this cadence within the organization’s VRM policy and communicate the cadence to vendors within relevant SLAs.

Best practices recommend organizations audit all vendors annually. However, personnel should audit critical-risk vendors more frequently to ensure their security posture has stayed the same and their attack surface is well protected. Audits should include security questionnaires, vendor risk assessments, and comprehensive security ratings.  

An organization’s security team can consult with senior stakeholders and executives to develop a cadence that meets its unique VRM goals and effectively manages its vendor inventory.

Establishing Reporting Expectations

Executive reports provide specific vendor risk management data and context to help senior stakeholders, investors, and board members improve organization-wide decision-making. An organization’s reports should draw a balance between including swaths of information and being easily digestible.

An organization’s reports should contain consistent metrics to provide an overview of the organization’s third-party risk profile. By using a complete VRM solution, like UpGuard, organizations can utilize automation to develop reports that include:

• Average vendor security rating
• Number of vendors monitored
• Distribution of vendors by risk level
• Most and least improved vendors
• Fourth-party risk
• Vendor geo-location

Learn more about UpGuard’s tailor-made reports>

How UpGuard Helps the Healthcare Industry

UpGuard streamlines the VRM process and helps healthcare organizations take control of their vendor ecosystem. G2 and Gartner recognize UpGuard Vendor Risk as a leader in vendor risk management and third-party risk identification software.

UpGuard Vendor Risk includes a complete toolkit of powerful features:

• Vendor Risk Assessments: Fast, accurate, and provide a comprehensive view of your vendors’ security posture 
• Third-Party Security Ratings: An objective, data-driven, and dynamic measurement of an organization’s cyber hygiene
• Vendor Security Questionnaires: Flexible questionnaires that accelerate the assessment process and provide deep insights into a vendor’s security
• Stakeholder Reports Library: Tailor-made templates allow personnel to communicate security performance to executive-level stakeholders easily  
• Remediation and Mitigation Workflows: Comprehensive workflows to streamline risk management processes and improve security posture
• Integrations: Easily integrate UpGuard with over 4,000 apps using Zapier
• 24/7 Continuous Monitoring: Real-time notifications and around-the-clock updates using accurate supplier data
• Intuitive Design: Easy-to-use vendor portals and first-party dashboards‍
• World-Class Customer Service: Professional cybersecurity personnel are standing by to help you get the most out of UpGuard and improve your security posture