What The Emergence of an EMR Giant Means For the Future of Healthcare Innovation

(Note: the following commentary was co-authored with Tory Wolff, a founding partner of Recon Strategy, a healthcare strategy consulting firm in Boston; Tory and I gratefully acknowledge the insightful feedback provided by Jay Chyung of Recon Strategy.)

Medicine has been notoriously slow to embrace the electronic medical record (EMR), but, spurred by tax incentives and the prospect of cost and outcomes accountability, the use of electronic medical records (EMRs) is finally catching on.

There are a large number of EMR vendors, who offer systems that are either the traditional client server model (where the medical center hosts the system) or a product which can be delivered via Software as a Service (SaaS) architecture, similar to what salesforce.com did for customer relationship management (CRM).

Historically, the lack of extensive standards have allowed hospital idiosyncrasies to be hard-coded into systems.  Any one company’s EMR system isn’t particularly compatible with the EMR system from another company, resulting in – or, more fairly, perpetuating – the Tower of Babel that effectively exists as medical practices often lack the ability to share basic information easily with one another.

There’s widespread recognition that information exchange must improve – the challenge is how to get there.

One much-discussed approach are health information exchanges (HIE’s), defined by the Department of Health and Human Services as “Efforts to rapidly build capacity for exchanging health information across the health care system both within and across states.”

With some public funding and local contributions, public HIE’s can point to some successes (the Indiana Health Information Exchange, IHIE, is a leading example, as described here).  The Direct Project – a national effort to coordinate health information exchange spearheaded by the Office of the National Coordinator for Health IT – also seems to be making progress.  But the public HIEs are a long way from providing robust, rich and sustainable data exchange.

In their stead, private HIEs – serving collections of collaborating hospitals and providers —  seem to account for the lion’s share of growth in the HIE space.  In particular, one company – Epic (discussed recently by Forbes colleague Zina Moukheiber here) – seems to have emerged as top dog in the large hospital space, winning contracts from most of the nation’s most prestigious centers, and many of the nation’s largest; a deal with Boston powerhouse Partners Healthcare was recently announced.  (Another leading EMR contender, Cerner, is profiled this week by another Forbes colleague, Matthew Herper.)

Notably, Epic is built on a traditional client server model, and does individual, customized installations for each client; a reputation for near-flawless implementation — derived by tightly constraining how much idiosyncracy is engineered in each install — has been a prime driver of growth.  While Epic systems seem to be able to communicate with other Epic systems with relative ease, communication outside of Epic seems more problematic.

The ambulatory practice space, on the other hands, appears to remain highly fragmented and largely up for grabs, as a number of competing companies – particularly SaaS-based approaches such as AthenaHealth, PracticeFusion, and eClinicalWorks seek to gain traction.

Add to the mix the observation that medicine is undergoing a general consolidation, as solo practices and small practices increasingly find themselves in the arms of larger hospital systems, which are also merging. No wonder so many practices are still reluctant to adopt EMR given all the uncertainty (why buy or upgrade a system if we are going to sell the practice?) and confusion (which system to buy given the cacophony of brands, acronyms and regulations we don’t understand).

So how is all this likely to play out?  The first question, as we see it, will be whether Epic, essentially a private system, will be able to dominate the EMR space (hospital and outpatient) before alternatives – likely utilizing SaaS and leveraging an expanding array of national interoperability standards, can gain traction; the second question is what are the likely consequences of Epic winning – and of Epic losing.

Let’s assume Epic’s march though large (and increasingly mid-sized) hospitals continues and synergizes with the flight of small practices into delivery systems, ultimately enabling Epic to achieve a clear dominance (especially in the presence of highly fragmented competition) and effectively set the standards going forward; with enough physicians using the system, there will be significant pressure on the laggards to adopt it.

Epic will effectively be health IT’s (HIT’s) Roman Empire:  establishing the laws and the language for “known world”, as well as the underlying infrastructure, and ends up shaping information flows, IT architecture and – potentially – the eventual configuration of provider systems.

From an industrialization perspective, rolling out solutions systematically into a closed Epic system should prove to be cost efficient, and may deliver enormous value if, as some believe, the most significant opportunity for improving healthcare is supporting the consistent and reliable delivery of care.

However, if solving major healthcare delivery problems requires innovation — on the frontier of evidence-based medicine, in clinical practice, in workflows, in practice models — as many believe, then it starts to get very interesting, as such a tightly-controlled system could be either good or bad.

The optimistic scenario would be that Epic could take inspiration from Apple’s approach to apps, using its dominant market position to provide a clear set of operating standards and expectations, and cultivate a far-flung innovation ecosystem based on its established platform.  In this scenario, Epic could keep its products relevant and stay on the leading edge by adapting quickly to evolving market needs.

Alternatively, if Epic (already based on an antiquated technology – MUMPS) decides to maintain an essentially closed system, and to drive all innovation internally, this could prove stultifying, limiting the development of novel ideas, and forcing the many high-profile adopters of Epic to accept stagnation or pay the staggering costs of switching.  The restrictive mindset might drive determined innovators – entrepreneurs, developers, and eventually even clients — straight into the arms of competitors.

The second group of scenarios – we call them “Open Data” — assume that progress on interoperability standards, together with Epic’s focus on convincing large clients to adopt its functional but hardly delightful software, will create an opportunity for an agile competitor to compete effectively for the long tail customers, especially those who’ve deliberately avoided participation in a large hospital system, and might especially value an EMR system that offers a great user experience, and doesn’t distance the physician from the patient the way most EMRs tend to do.

The optimistic scenario here is that the widespread adoption of standards leads to a flourishing ecosystem based not on exclusionary access to data, but rather on the ability to utilize these data in the most appealing and useful fashion, ideally making it easier to deliver care and demonstrate value.  (Epic may continue to build out its market share within hospitals, but it will have to do it without the exclusivity-based network advantage derived from its previous installations).

On the other hand, the long history of entrenched legacy systems, coupled with slow adoption of standards, could result in a long tail that remains highly fragmented.  And, if the primary drivers of EMR adoption remain carrots (incentives) and sticks (penalties and accountability) rather than transparent market dynamics that drive innovation (substantive improvements to patient care), then there is a particularly high risk that the long tail will remain highly fragmented.

But this scenario is not stable.  If ambulatory HIT solutions, as a whole, fail to deliver, long tail providers will be at a significant competitive disadvantage, and may be more tempted than they already are to throw in the towel and sell to hospital systems – not because it’s the best care delivery model, but because it’s the only viable option.  We may end up with big integrated blocs by default.

There’s plenty of skepticism within the HIT community about Epic’s current model, and many doubt Epic will emerge as the Apple of healthcare innovation.  Epic’s “capture all the information” approach certainly feels at odds with a distributed world; moreover, if Epic manages to dominate the market using their existing approach, they will enjoy significant “locked-in” revenue, and may simply not see a lot of incremental profit in rapidly changing.

A SaaS-based, “Open Data” approach seem theoretically where health information systems should, and will,  eventually wind up – the architecture provides flexibility, is nimble, and is low cost.   But if the industry is unable to consolidate around, advance, and aggressively operationalize interoperability standards, we may wind up spending a lot more time enduring the current chaos.

Finally, it’s interesting to wonder what Epic will do as it contemplates the future, especially the very real possibility that its current dominance will be disrupted.

While one approach is to focus on growing as rapidly as possible, it’s intriguing to speculate whether they’d consider the acquisition of a leading SaaS-based provider.  This could enable them to compete more effectively for long-tail customers immediately, could provide an opportunity to expand and diversify their current system, and could also serve as a useful hedge, so that if – or when – the world changes, they’re not stuck with what are essentially mainframes in a cloud-based world.  It would need to do so soon, before its organically derived market share would make the FTC approvals a barrier to any meaningful acquisition.

David Shaywitz is co-founder of the Harvard PASTEUR program, a research initiative at Harvard Medical School. His a strategist at a biopharmaceutical company in South San Francisco. You can follow him at his personal website. This post originally appeared on Forbes.

12 replies »

  1. Thanks for the valuable post. It is truly necessary to keep a record of the health line. Electronic medical record has made it more easy in a better way, but before all these one must need proper assistance as there are many vendors in the market who are operating such services. To choose the most effective one I may suggest the assistance of Stay Strong PT as they have provide me a satisfactory one…

  2. First of all thank you for the article david! I found it while searching for physical therapy documentation software. I think that EMR technology is the wave of the future in a technological society. It stream lines everything and makes everything so much easier. It also allows patients to check their records which I think is great. While their may be some risks, I think overall its worth it. Thanks again for the read!

  3. This is the first time I’ve seen a coherent explanation of the market forces, communication standards, and the inherent differences therein between hospital systems and non-affiliated clinics.

    Healthcare providers may view an Epic install as a foregone conclusion, and disregard alternatives. Healthcare providers may not think to demand some measure of open architecture at the point when they are inking their contracts (and have the most leverage), but they should.

    Why? Because SAAS vendors that can bring significant additional value to an EMR are already deciding that the Epics of the world don’t “play well with others”, and they are devising service offerings, and sometimes completely separate EMRs that have nothing to do with the legacy platforms.

    Unless those legacy platforms open their architecture to the “app” model described, they will themselves supplanted by better, faster, cheaper approaches in the not distant future. Indeed, there is the possibility that the today’s system, put in at a cost of tens if not hundreds of $Millions, may quickly find itself as tomorrow’s legacy system (the precedents are out there). The rumbles are already beginning, and the SAAS vendors that can pull it off are already working on it.

  4. Great post here. The issue of innovation at the heart of the discussion here is the same being approached in the repeal of the medical device excise tax. Here’s a great short analysis that highlights how the new tax will make it more difficult for companies to spur innovation and create jobs: http://bit.ly/KfVAKq

  5. It is farcical to consider this when patients are dying from the flaws in the devicea current in use.

    Get the devices evaluated for safety, efficacy and usability, and the docs may want to use them. If they were meaningfully useful workflow contollers, that did not incessantly need workarounds, the Feds would not have to pay docs to use them and retaliate if they do not.

    You may be interested to know that Epic may grow, but it is doing so by using anticompetitve strategies, refusing to interface with other vendors’ HRS when both are in the market locale.

  6. Babel update, from ONC “Meaningful Use Certified EHRs” –

    Outpatient: 1,495, or which 947 are “complete systems.”

    Inpatient: 764, of which 220 are “complete systems.”

    2,259 “Certifications” issued to date, “modular” and “complete.”

    Everyone Gets A Prize.