Re-aligning healthcare

March 1, 2009

Only a small fraction of physicians use an electronic
health record (EHR) systems in their practices, and many are low-tech.
While health information technology (HIT) advocates often lament this
fact, they miss the many good reasons physicians do not adopt the
latest technology.

Hospitals are the major buyers of healthcare
equipment and the major investors in infrastructure. They deliver
capital-intensive services, borrowing to finance a massive capital
outlay for a structure or a piece of equipment and then provide
low-marginal cost services for high prices to service the debt.
Tightening credit markets have put this model in jeopardy. Standard &
Poor's Capital IQ reports that as of October 2008, 74% of the health
sector's publicly traded debt has been downgraded to “junk” (rated below
BBB). Now is a difficult time to be selling capital-intensive
systems to hospitals.

In contrast, physicians tend to focus on delivering
care with a minimum of capital investment and a maximum of expensible
(and, ideally, reimbursable) consumables. They increase cash flow first
and cut expenses second. Suggesting a five-figure investment per
physician on an EHR addresses neither.

Physicians recognize that many process improvements
in the health system do not benefit them. A system that reduces office
visits, tests, or procedures reduces their revenue and legislative
mandates; grants and government initiatives do nothing to correct this.
Many advocates highlight these reductions, but in a fee-for-service
model, even errors can be profitable for providers.

In one list of HIT benefits, 63% of “savings”
reported were either items profitable to providers or costs not borne by
them. Subtracting these “benefits” from the calculation turns the
five-year return on investiment negative for all but the largest

The benefits to even large practices are unproven: In
Kaiser Permanente's failed Hawaiian EHR project, the vendor's poor
relationship with Kaiser's team resulted in conflict, delay, and cost
overruns. After 28 months, the $442 million system was scrapped and
replaced with another EHR.

Even with successful implementations, a struggling
economy can cause problems, many of which result from a history of
friction between HIT advocates and patient-facing providers. Despite the
desire to revolutionize care, transformation cannot come overnight; the
field is not failure tolerant, and stakeholders do not agree on what a
transformed system should look like. The process should be developed and
delivered in an agile model, one where candidate systems are rapidly
prototyped, tested, and modified, applying a medical process to medical
systems. This kind of open-ended development often does not match with a
facility's budgeting process; and as Kaiser in Hawaii experienced, a
process of continuous improvement can be very expensive.

What do providers want? Physicians are overloaded;
revenue opportunities are increasingly scrutinized, and HIT systems
increase that scrutiny. Physicians want systems that streamline
workflow, increase revenue, expedite reimbursement, and reduce costs.
They want patients to benefit from their services. Physicians address
medical error through increased vigilance and not computer algorithms.
Except for Medicare's “reasonably preventable” conditions, minor
mistakes can be profitable.

More critically, several experiences have identified
errors introduced by HIT systems. In 2005, University of Pittsburgh
physicians reported that after deploying a computerized physician
order-entry system, infant mortality increased in their facility.
Aspects of user-interface design can cause the wrong drugs or diagnoses
to be selected. None of the major systems available on the market can
address all these issues. Regulators, however, are working to lock in
the current model.

For example, Certification Commission for Health
Information Technology's (CCHIT's) certification requires “clinical
templates,” making it impossible to certify innovative systems that
manage workflow in a different paradigm. No legislation “requires” CCHIT
certification; it was created to provide some protection in litigation,
without which funding development and selling the product becomes
impossible. Given the challenges, it is not surprising that Google chose
to launch a non-HIPAA-compliant health offering, and groups such as
Health 2.0 focus almost entirely outside
of formal healthcare.

HIT vendors should turn their attention from
facilities to physicians. With the credit crisis, hospitals will not be
making capital investments for small gains in efficiency. Physicians
will be open to ways to improve their process, and HIT systems that
provide them will be welcome. Some key goals:

Share the risk: HIT vendors typically ask for
large, up-front capital expenditures on promises of future benefits,
which generally have not appeared. If vendors believe these promises,
they should share the risks and deliver their products in a
software-as-a-service model.

Reduce the friction: HIT failures have
revolved around sales of incomplete or inappropriate systems. Vendors
need to offer complete, working systems and a uniformly positive
experience from early adopters. Healthcare is an industry of best
practices; HIT systems should not require extensive
(and expensive) customization.

Address issues impacting valuation:
Government and vendor groups should loosen their hold on HIT standards.
An industry that cannot sell to more than 4% of the market does not know
what the standards should be. Service levels, reliability, privacy and
security, and compliance with applicable laws must become standardized.
Everything else should be open to innovation — and may the best system

Align incentives: Physicians should be
compensated for providing the best and most effective care. Instead of
penalties and bonuses, physicians should be offered generous new revenue
opportunities around well-care, whether in the form of disease
management, or diet and exercise supervision (i.e., physicians would
re-engineer their care model if offered one-half the savings from
reduced hospitalizations in such a model).

Worldwide, Americans pay the most for their care,
both in absolute terms and as a percentage of gross domestic product,
and receive uneven and unpredictable quality. They should re-engineer
their care around information systems to increase efficiency and cut
costs. Incentives created by the complexity of health financing make it
challenging to deploy, as HIT users are typically not the
primary HIT beneficiaries.

Until insurers and employers who benefit from the cost reductions and
efficiency gains engendered by HIT are able to finance its adoption, it
will be difficult to deliver the maximum value to patients — and to the
system overall. Still, there are many opportunities to tailor systems to
particular constituencies, and with a tight focus on the needs of the
customer, compelling
value can be created.

Peter Schmidt is director of Cronus Partners LLC.
Contact him at 203-642-0200 or at
[email protected]