Rid­ing the wave

As fed­eral EHR in­cen­tives re­cede, the next surge in health IT spend­ing be­gins to take shape

Modern Healthcare - - COVER STORY - Joseph Conn

Pres­by­te­rian In­tercom­mu­nity Hos­pi­tal in Whit­tier, Calif., is lay­ing the ground­work for its next big ad­vances in in­for­ma­tion tech­nol­ogy. The 409-bed hos­pi­tal, which is part of PIH Health, al­ready has about half its am­bu­la­tory-care physi­cians—58 providers in 16 of­fices—meet­ing govern­ment re­quire­ments for elec­tronic health records, a job it plans to com­plete next year. The hos­pi­tal has met mean­ing­ful use, too. Now it’s turn­ing its at­ten­tion to im­ple­ment­ing a bar-code med­i­ca­tion ad­min­is­tra­tion sys­tem and set­ting up a data ware­house for pa­tient records, which should en­able it to track pa­tients as they move through the sys­tem, man­age the over­all health of its pa­tient pop­u­la­tion and learn from its ex­pe­ri­ences.

The hos­pi­tal also plans to add a pa­tient por­tal, which it sees as key to in­volv­ing pa­tients in their own care and a cru­cial part of im­prov­ing pop­u­la­tion health while low­er­ing over­all health­care costs. “It’s re­ally about pa­tient en­gage­ment,” said Dr. Davis Lee, a pe­di­atric hos­pi­tal­ist who serves as the sys­tem’s chief med­i­cal in­for­ma­tion of­fi­cer. “There are ben­e­fits to get the pa­tients to go on­line and com­mu­ni­cate with providers. We want to be able to do that. With our or­ga­ni­za­tion grow­ing as big as it is, we want them to go to one place to look up their records and in­for­ma­tion, whether they’re in am­bu­la­tory, in­pa­tient or home health.”

Hos­pi­tals like Pres­by­te­rian In­tercom­mu­nity are on the front edge of the next wave of health­care in­for­ma­tion tech­nol­ogy spend­ing. The $22.5 bil­lion fed­eral EHR in­cen­tive pro­gram still has sev­eral years to run. But as it ebbs, some an­a­lysts are now pre­dict­ing that a new wave of health IT spend­ing on other IT sys­tems will rush in to take its place.

Rather than EHRs dom­i­nat­ing health IT spend­ing, the next round of in­vest­ment is likely to ad­dress other IT needs. New pay­ment mod­els and pay-for-per­for­mance plans in the Pa­tient Pro­tec­tion and Af­ford­able Care Act will re­quire health­care or­ga­ni­za­tions to re­vamp or re­place a lot of ag­ing fi­nan­cial man­age­ment sys­tems. De­mand for those sys- tems in re­cent years has been ar­ti­fi­cially de­pressed by providers’ need to fo­cus on adopt­ing clin­i­cal sup­port sys­tems that would qual­ify them for fed­eral EHR sub­si­dies.

Next year’s switch to the ICD-10 fam­ily of di­ag­nos­tic and pro­ce­dural codes will also be giv­ing a ma­jor boost to IT firms that of­fer com­put­er­ized cod­ing and doc­u­men­ta­tion sup­port tools. ICD-10 should also gen­er­ate lots of con­sult­ing con­tracts for firms of­fer­ing ad­vice, train­ing and im­ple­men­ta­tion sup­port. Last week, a study group from the Amer­i­can Med­i­cal As­so­ci­a­tion, the last ma­jor or­ga­ni­za­tion ob­ject­ing to the fed­er­ally man­dated switch to ICD-10, dropped its de­mand the health­care sys­tem await de­vel­op­ment of ICD-11 codes. By stand­ing down, the AMA re­moved a cloud over the Oct. 1, 2014 con­ver­sion.

And then there’s sim­ply the need to fin­ish the job be­gun by fed­eral sup­port for EHR im­ple­men­ta­tion. “The ARRA never con­tained suf­fi­cient fund­ing to pro­vide in­cen­tive pay­ments to all hos­pi­tals and physi­cian prac­tices that did not have an EHR sys­tem at the be­gin­ning of 2013 to im­ple­ment one by 2015,” An­drew McWil­liams, an an­a­lyst for BCC Re­search of Welles­ley, Mass., said in an e-mail.

The re­search group re­cently pre­dicted to­tal spend­ing on clin­i­cal health IT would soar to $26.1 bil­lion a year in five years, up from $9.5 bil­lion in 2011 and $11.2 bil­lion last year. “The con­tin­ued high growth rate be­yond 2015 re­flects the ex­is­tence of con­sid­er­able un­sat­is­fied de­mand,” he said.

Op­ti­mism about on­go­ing, ro­bust spend­ing on health IT is re­flected in soar­ing stock prices for the de­vel­op­ers of sev­eral of the in­dus­try’s more pop­u­lar EHR brands. North Kansas City, Mo.-based Cerner Corp., one of the lead­ing de­vel­op­ers of EHR and fi­nan­cial sys­tems for hos­pi­tals, late last month re­ported a 25% jump in quar­terly earn­ings to $110 mil­lion from $88 mil­lion a year ago af­ter post­ing sales of $680 mil­lion, up 6% from $641 mil­lion in the first quar­ter of 2012. In pro­jec­tions for this year, Cerner ex­pects a 13% rate of rev­enue growth and 17% rate of growth for earn-

ings per share for 2013 com­pared with 2012.

Jef­frey Loo, an an­a­lyst with S&P Cap­i­tal IQ in New York, gives Cerner a “strong buy” rec­om­men­da­tion, pro­ject­ing a 23% com­pounded an­nual growth rate for the com­pany over the next few years de­spite the falloff in fed­eral EHR in­cen­tive pay­ments.

“Ev­ery­body as­sumes that when mean­ing­ful use is over, the bub­ble will pop, but there are a lot of other things driv­ing growth,” Loo said. “Ac­count­able care or­ga­ni­za­tions, there are about 200 right now (and) that’s go­ing to grow. Value-based pur­chas­ing. The ICD-10 con­ver­sion, that’s an­other growth rate,” he said.

And even the firm’s core health IT sys­tems should con­tinue to see good busi­ness as the fed­eral in­cen­tives wind down. “It’s not just the im­ple­men­ta­tion, it’s the on­go­ing main­te­nance” that gen­er­ates rev­enue for an IT com­pany.

ValuEngine, a Melbourne, Fla., stock an­a­lyt­ics firm, col­lec­tively rates its heath IT marketbasket of 12 pub­licly traded med­i­cal in­for­ma­tion sys­tems com­pa­nies as a sell. Those com­pa­nies in­clude Cerner and Athenahealth. “We wouldn’t rec­om­mend to our in­vestors to go into this in­dus­try,” said Paul Hen­ne­man, an an­a­lyst with the firm. “By all mea­sures, th­ese stocks ap­pear to be run up.”

That may be due to op­ti­mistic pro­jec­tions about the fu­ture of health IT be­yond the ba­sic EHR. Mul­ti­ple health­care IT lead­ers and in­di­ca­tors point to in­creas­ing de­mand for a num­ber of health IT sys­tems dur­ing the next few years, while spend­ing on EHRs, the fo­cus of the Medi­care and Med­i­caid in­cen­tive pay­ment pro­grams un­der the Amer­i­can Re­cov­ery and Rein­vest­ment Act of 2009, may have topped out in 2012.

In re­cent re­ports, for ex­am­ple, Frost & Sul­li­van, a Moun­tain View, Calif.-based tech­nol­ogy mar­ket re­search and con­sult­ing firm, pre­dicted beefed-up spend­ing for a wide range of elec­tronic tech­nolo­gies aimed at health­care providers over the next sev­eral years. The firm is fore­cast­ing a nearly 62% growth rate in sales of rev­enue-cy­cle-man­age­ment sys­tems be­tween 2012 and 2017, from $1.9 bil­lion to al­most $3.1 bil­lion; a 93% leap in elec­tronic per­sonal emer­gency re­sponse sys­tems from $964 mil­lion in 2012 to $1.86 bil­lion in 2017; and a 133% jump in re­mote in-home mon­i­tor­ing sys­tems from $127 mil­lion in 2010 to $295 mil­lion in 2015.

On the other hand, the firm sees com­bined EHR sales for hos­pi­tals and am­bu­la­tory care fall­ing about 34% from its high-wa­ter mark of $9.2 bil­lion in 2012 to just over $6 bil­lion in 2016. The rea­son for the pro­jected slow­down is that with $13.2 bil­lion of the fed­eral EHR in­cen­tive money spent through March, ac­cord­ing to the lat­est CMS data, $9.3 bil­lion in stim­u­lus money re­mains.

The re­sults have been dra­matic, of course. So far, 73% of hos­pi­tals and 48.5% of of­fice­based physi­cians and “other pro­fes­sion­als” have pur­chased, in­stalled or up­graded to cer­ti­fied EHR sys­tems and re­ceived ini­tial— and their largest—pay­ments un­der the pro­grams. “The in­cen­tive pay­ments were front­loaded,” said Arun Mathews, chief med­i­cal in­for­ma­tion of­fi­cer at Med­i­cal Cen­ter Health Sys­tem in Odessa, Texas. “The Stage 1 money is go­ing to be the big­gest checks any­one is go­ing to get.”

“EHRs have peaked,” agreed Nancy Fabozzi, the prin­ci­pal health­care an­a­lyst at Frost & Sul­li­van, but it doesn’t fol­low that over­all health­care IT sales will be dragged down. “There are thou­sands of com­pa­nies sell­ing thou­sands of prod­ucts—hard­ware, soft­ware and ser­vices … (with) no re­ally solid, de­fin­i­tive num­ber for this (en­tire) mar­ket. The pric­ing is very opaque. It’s still very se­cre­tive. Ven­dors won’t tell you. Providers won’t tell you. … If some­body put a gun to my head, I’d say 6% per year (growth) for ev­ery­thing,” she said.

BCC Re­search is sig­nif­i­cantly more op­ti­mistic. Not only does the firm see spend­ing on EHRs con­tin­u­ing to grow, but also spend­ing on hard­ware, chiefly for telemedicine, will rise, too (See chart, p. 6).

One fac­tor that could put a dam­per on the boom is a short­age of cap­i­tal at provider or­ga­ni­za­tions, which will con­tinue to be un­der pres­sure from pay­ers in the pub­lic and pri­vate sec­tors to cut costs. “What’s a coun­ter­weight to all this is de­creas­ing re­im­burse­ment and hos­pi­tals and health­care sys­tems op­er­at­ing on thin­ner mar­gins,” said Mitch Mor­ris, vice chair­man of Deloitte and national sec­tor leader of the health­care provider prac­tice at the global con­sult­ing firm. Two years ago, Mor­ris said, HIMSS An­a­lyt­ics, the data anal­y­sis arm of the Chicago-based Health­care In­for­ma­tion and Man­age­ment Sys­tems So­ci­ety, sur­veyed chief in­for­ma­tion of­fi­cers about their health IT pri­or­i­ties. “Seventy-one per­cent said they were go­ing to do a ma­jor up­grade on their pa­tient ac­count­ing sys­tem. Two years later, al­most no one has re­placed their pa­tient ac­count­ing sys­tem. So, there’s a dis­con­nect be­tween what the CIOs want and plan for and what CFOs are go­ing to write a check for,” he said.

But that doesn’t ap­pear to be the prob­lem at PIH Health in Cal­i­for­nia, where Lee has watched the hos­pi­tal com­put­er­i­za­tion rev­o­lu­tion un­fold from the be­gin­ning. In 2006, the hos­pi­tal be­gan in­stalling an EHR that even­tu­ally com­put­er­ized physi­cian-or­der en­try, in­te­grated the phar­macy sys­tem and in­cluded nurs­ing and physi­cian doc­u­men­ta­tion.

Af­ter the hos­pi­tal met the govern­ment’s Stage 1 mean­ing­ful-use cri­te­ria and was paid un­der the Medi­care por­tion of the fed­eral EHR in­cen­tive pro­gram, it moved on to ex­pand­ing the sys­tem to all of its af­fil­i­ated physi­cians’ of­fices. Ex­pan­sion to its last 15 physi­cian of­fices, which have a to­tal of 80 providers, will be com­pleted next year. And now, as it plans for new sys­tems such as bar-code med­i­ca­tion ad­min­is­tra­tion and data ware­hous­ing, PIH has set a loftier goal: achiev­ing Stage 7, the high­est level of the health IT cer­ti­fi­ca­tion process de­vel­oped by HIMSS An­a­lyt­ics.

Only an elite 109 hos­pi­tals in the U.S. have achieved Stage 7, ac­cord­ing to the HIMSS An­a­lyt­ics web­site.

For Lee, at­tain­ing Stage 7 “would fur­ther show our com­mit­ment of lever­ag­ing tech­nol­ogy to im­prove qual­ity of care and pa­tient safety across our in­te­grated de­liv­ery sys­tem.”

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