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A Message to America’s Physicians: Purchasing EHR Technology A Shaky State of Affairs

By Brian Klepper and David Kibbe

Much of the conversation and debate about physician EHR adoption has centered on the single issue of the (high) cost of purchase.  However, we’d like to suggest that the situation is much more complex and involves several more subtle variables.

Consider, for example, uncertainty about the future.  In a recent speech, Lawrence Summers, Director of the White House’s National Economic Council for President Barack Obama, related the following analysis about decision-making under conditions of uncertainty in the marketplace, which he had first heard from Ben Bernanke, current Chairman of the Federal Reserve, in a speech Mr. Bernanke gave over 30 years ago:

“If you as a business were considering buying a new boiler, and if you knew the price of energy was going to be high, you would buy one kind of boiler.  If you knew the price of energy was going to be low, you’d buy another kind of boiler.  If you didn’t know what the price of energy was going to be, but you thought you would know a year from now, you wouldn’t buy any boiler at all.  And in exactly that way, it is illustrated that the reduction of uncertainty, through the resolution of disputes, is, I would suggest, all important, if we are to maintain confidence.”

Let us paraphrase both of these eminent economists, while applying the same set of ideas to the purchase of electronic health records:

If you as a physician were considering buying a new EHR technology, and if you knew the reimbursement rates for your practice were going to be high, you would buy one kind of EHR.  If you knew the rates of reimbursement were going to be low, you’d buy another kind of EHR.  If you didn’t know what the reimbursement rates were going to be, but you thought you would know a year from now, you wouldn’t buy any EHR at all.

We’ve substituted “reimbursement rates” for the “cost of energy” here because, especially for physicians in small practices with under ten clinicians, the amounts they are paid per encounter by health plans, Medicare, and Medicaid are what determines how much money net of expenses will be available for significant investments such as EHRs at any given period of time.

And there is enormous economic uncertainty for physicians now.  A 21 per cent cut in fees from Medicare is looming overhead, set to go into effect January 1, 2010.   An arcane system known as the SGR determines annual Medicare payment rates by using a formula that aligns actual spending rates with specified targets. Medicare rates are crucial as they are the benchmark rates by which private sector health plans set their payment schedules. In the past several years, spending has exceeded targeted rates, triggering steep reductions in physician payment rates, which have been averted only by last minute Congressional intervention. What’s worse is that recently the so-called “Medicare-fix” of the SGR has become a political football, with a Democrat-led effort to revamp the system as part of the health reform legislative package failing to reach the Senate floor for a vote on October 14, 2009.  This only adds to the uncertainty regarding what physicians will earn in 2010 and beyond.  No cut? A 5 per cent cut? A 21 per cent cut?  The prudent physician or practice administrator, like the prudent business, would be wise to delay major purchases like an EHR until knowing if there will be capital available to pay for them.

Enter the ARRA/HITECH incentive payments of as much as $44,000 for “meaningful use of certified EHR technology” over a 5 year period starting in 2011, intended to stimulate physician and hospital adoption of EHR technology, uptake of which has been anemic at best.  Currently, only somewhere between 15-20 per cent of physicians are using EHRs, and the number among small and medium size practices is even lower.   Clearly, Congress and HHS believe that a stimulus of approximately $10,000 per doctor per year should be enough to induce a significant number of America’s doctors to change their minds and acquire and use EHR technologies in their practices by 2015.

But only if the doctors can make a reasonable calculation as to the net costs of such a purchase, and right now there is too much uncertainty to make such a calculation.  Not only do they not know the federal government’s definition of a “certified EHR technology”  — which will determine which products currently on the market, or on the market sometime during 2010-2011, will qualify their practices for incentives, if purchased.  They do not know yet which particular “meaningful uses” of such technology will be rewarded, if such a “certified” technology is purchased.   They also don’t know how to apply for the incentive payments, when to make such application, or in what time period to expect a reply.   (To be fair to ONC and HHS, the regulations sorting all this out are expected to be released in December, 2009.  However, as we understand the process, final versions are unlikely to be read into the Federal Register until mid-2010 or beyond.)

Furthermore, many physicians with whom we’ve spoken believe that the $44,000 being offered by the ARRA/HITECH incentives would cover only a quarter to a third of the actual total costs of ownership during those five years, leaving them with expenses of roughly an additional $100,000 per physician that must come out-of-pocket in order to implement one of these software programs.  This may be why one hospital recently offered to add an additional $40,000 per physician, over and above the ARRA/HITECH payments, as incentive to get their system’s doctors to utilize one of the more popular EHR products. (“Popular” may be a stretch.  When only 15 per cent of doctors have chosen to acquire an EHR from any vendor, none of them can really be considered the people’s choice.)

Thus, there exists a significant “uncertainty gap” between what Medicare or Medicaid is willing to pay a physician to adopt an EHR technology, and what the actual costs to each physician will be.  Physicians buying now must either a) accept the possibility of a significant out-of-pocket expense, or b) have confidence that health care payment reform will provide significant additional payments beyond those of ARRA/HITECH to doctors will make up the difference.
However, confidence among physicians in incentive payment programs from HHS and CMS is probably at an all time low.  Many thousands of physicians who complied with the Physician Quality Reporting Initiative, or PQRI, by sending CMS quality and performance data from 2007 to 2009, have yet to receive a penny for their efforts. Some report they haven’t even gotten responses from CMS as to the nature of the problems!   The bonus payments are just 1.5-2.0 per cent of Medicare billings, or between $1,000 and $2,000 for the average family physician or general internist.  But according to many physicians, the work that has to be done in order to qualify for these payments  routinely uses nearly as much office staff and IT consulting work as the bonus is worth.  The many snags encountered by physicians who have tried to participate in PQRI have added insult to injury, significantly tarnishing the reputation of CMS and putting into question, in the minds of many physicians at least, the government’s ability to operate the ARRA/HITECH incentives, without question a much more complex endeavor than has been PQRI.

Finally, physicians lack confidence in broad payment reform of the kind that would actually create a return on investment for health IT used to improve quality and monitor costs of care.  Beyond the issue of Medicare incentive payments for EHR technology not yet specified, to be used in ways that haven’t yet been defined, doctors are manifestly not confident about the longer term issue of whether short-term incentive payments will be converted to sustainable economic returns, as through pay-for-performance, after 2015.   This concern is perhaps more relevant to the reduction of uncertainty and the build-up of confidence than the narrow issue of ARRA/HITECH incentive payments, which are, after all is said and done, a faux business model for investments in EHR technology that comes to an end in 2015.

So, what should America’s doctors do?  Well, we’re not in the business of advising people about how to spend their hard earned money.  But we do believe that it’s human nature to be conservative and to withhold investing when uncertainty about income, expenses, and returns on investments is high, and doubly so when confidence in the people and organizations making the decisions that effect those variables is low.  That this is precisely the situation in which most doctors in America who work in small and medium size medical practices now find themselves may be more determinative about the future of the EHR market place and adoption of EHR products and services than any advice we could offer.  This interplay of uncertainty, confidence, and money for health IT investments may also create challenges and give direction for Dr. Blumenthal and his staff at ONC as they operationalize the policy and regulations mandated by ARRA/HITECH.  For one thing, as Ben Bernanke so wisely pointed out many years ago, resolving disputes will be key to ending uncertainty and returning confidence to this shaky state of affairs.   But we’re not sure that even Congress has the will to resolve the disputes that would set our health care system on a reasonable course and reduce the uncertainties we’ve discussed here.

Brian Klepper, PhD is a health care analyst based in Atlantic Beach. David C. Kibbe MD MBA is a physician and
Senior Advisor to the American Academy of Family Physicians.

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purificadoras de aguaVishalDan Cohen, MDSkruegerJoe Buckle Recent comment authors
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Guest

The color of your blog is quite great. i would love to have those colors too on my blog.

Vishal
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Vishal

Nice post. Seem tree on most accounts but I also think that today medical practitioners are looking to avail of this federal incentive by trying to comply with the definition of meaningful use but at the same time EHR providers are looking at their own set of profits. This misunderstanding is mostly I believe as a result of wrong interpretation of the federal guidelines. The EHR providers need to look at these guidelines from the prospective of the practitioners who deal with different specialties. Each specialty EHR has its own set of challenges or requirements which I believe is overlooked… Read more »

Dan Cohen, MD
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Dan Cohen, MD

As a practicing Pediatrician in New York State, let me recap some of the issues touched upon above in simpler form: 1. Forcing Electronic Medical Records on doctors with the hypothesis that it is a good thing for healthcare in this country, is a mistake. From my perspective, it can be good, but it can be bad. Most doctors I know use EMR to make it easier to code higher and get higher reimbursements from insurance companies. There is little proof that we should be forced into this boondoggle. Most doctors who convert complain bitterly of the adjustment they have… Read more »

Skrueger
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LOOKING FOR SMART DOCTORS: Has anyone figured out how to make cash medicine strategies work in a medical practice? If you have, tell us what you’ve done that’s worked.
http://www.physiciantrends.com

MD as HELL
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MD as HELL

Too much automatiion is called “fraud” by CMS

Margalit Gur-Arie
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Margalit Gur-Arie

David, let me try and explain, but it will end up a bit long…. First of all let’s define what costs $5000. I am referring to traditional EHR, the way ONC is defining it and the way meaningful use is restricting it to be. This is software capable of meeting meaningful use criteria, i.e. connectivity to pharmacies, labs, other providers and patients, reporting all those very complex measures to Federal Agencies, collecting and documenting patient encounters, submitting claims electronically and verifying eligibility with payers, satisfying all security and CDS measures. This can be one monolithic application, or a number of… Read more »

David C. Kibbe, MD MBA
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David C. Kibbe, MD MBA

Margalit: Good points. But I think that $5,000 per physician is still too high a price to pay for these SaaS EHR technologies, given the appropriate platforms and open APIs to encourage developers to build good apps, and lots of them. I think we must consider not only the price, but the disruptive innovation that delivers good-enough products at much lower pricing, through innovative technology and innovative business models. And it’s not only Google. It’s happening all over. You mention Salesforce.com. They disrupted the CRM business, and might do so for health IT if they tried. What about Amazon? Again,… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

David, It’s not at all sacrilege to question today’s business models. However, hardware costs money and even the sassiest SaaS company must be profitable somehow or it will not stay in business. Salesforce.com, arguably the pioneer of such model, is not free. It’s very low priced compared to its competition, but not free. You can achieve efficiencies with SaaS that allow you to manage costs down significantly if you have a very high volume of easy sales. However, as I said above, unless you have a secondary means of obtaining revenues, not necessarily from the primary software, as Google most… Read more »

Joe Buckle
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This is an excellent representation of the current market for EMR/EHR in small practices.

David C. Kibbe, MD MBA
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David C. Kibbe, MD MBA

Dear Margalit: Thanks for your always good and thoughtful comments. I guess one has to ask: why should any physician pay $20k for an EHR technology in the era of Google Docs and PracticeFusion? The stark reality is that business models for software in the cloud have refashioned our thinking about the cost of this functionality. I now pay 99 cents or less per song, and $9.99 per book on Kindle, and nothing at all for Google Docs and Gmail. Would I pay something for the latter if I had to? Probably, as I depend upon them, it’s software that… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Unless you have a secondary means of getting revenue, prices will not come down much lower than $5000 – $6000 per provider/per year. That’s for EHRs that can meet meaningful use. There are basic license fees that have to be paid per user like FDB or MediSpan, patient information, CPT, any decent decision support like Isabel, maybe order sets, interface engine maintenance, server OS, database and .NET dev tools are not free either. Hardware to run the software on costs money and depreciates every year. Data center is another big expense. Then there is cost of software maintenance and upgrades,… Read more »

Matthew Holt
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I’m inclined to believe that 4 things will happen to make this a somewhat moot point 1) Price of EMRs will come down, driven by the SaaS model 2) Medicare and private payers will start demanding PQRI type reporting as part and parcel of their payment–which will require some part of this (e.g. registries, outcomes measurments) 3)Patients and other purchasers will start demanding the outputs of physician office workflow technology(e.g. online appointments, access to test results) that will get enough doctors’ offices to being “close enough” that we’ll call the problem solved in 8-10 years. 4) tools like the iPhone… Read more »

Gennady Beyzarov
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Gennady Beyzarov

Margalit, Thank you for the engagement and your response. I respect and understand some of the points you make. While I would like to give you counter points to consider, I will rather keep this posting short and make a clarification that I think many of us should bear in mind and that this article and everyone’s responses helped me to remember. That is, we keep referring to EHR as a technology but I think we should consider expanding that. It is not simply a technology. It is a whole new process, a whole new system, a whole new way… Read more »

Jim Bertsch
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Jim Bertsch

Computers are tools and software is a service. If you put the tools in the hands of a master, the tools can perform amazing services. They expand human abilities in all kinds of ways. EMR/EHR systems can provide many valuable and useful services that can enhance the way a physician does his job. There are free EMR/EHR systems ( check out: http://www.practicefusion.com/ ). The real cost is not money, but time. A good set of software services should improve a physicians abilty to engage with his patients and automate the workflow processes. Quality software in the hands of a master,… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Gennady, I think most people would agree that modern technology could be beneficial to a medical practice or any other business for that matter. The question is what should that technology be. The current technology, marketed and sold under the product name of EHR, has not proven to provide significant, across the board, benefits commensurate with the investment. In many cases, it has created adverse effects for both physicians and patients. It is true that there are success stories out there as well. However, if we compare EHR technology to any other technology used in the medical field, like devices,… Read more »