Why it’s risky to pay for a proprietary health IT system

“No aspect of health IT entails as much uncertainty as the magnitude of its potential benefits.”

A few years into the Meaningful Use program, it seems this quote from a 2008 Congressional Budget Office report entitled “Evidence on the Costs and Benefits of Health Information Technology” may have been written with the assistance of a crystal ball.

Fast forward to 2013.

“Just from reading a week’s worth of news, it’s obvious that we don’t really know whether healthcare IT is better or worse off than before [Meaningful Use incentives],” popular blogger and health IT observer Mr. HIStalk wrote earlier this year.

So, perhaps RAND was hypnotized by Cerner funding when they created their rosy prognosis (hearken back, if you will, to 2005 and the projected $81 billion in annual healthcare savings). Maybe they were just plain wrong and the most recent RAND report stands as a tacit mea culpa.

Either way, we’re left with hypotheses that, while not incontrovertible, are gaining traction:

  1. Health IT benefits will manifest gradually over an extended timeframe.
  2. Those benefits will not quickly morph into reduced costs, if they ever do.
  3. Because of 1 and 2, investing in a hugely expensive electronic health record system is potentially risky.

How risky? Without question, massive health IT expense and the predominant proprietary IT model are threats to a hospital or health system’s financial viability, to its solvency.

We’re seeing some examples even now.

Michigan’s Henry Ford Health System recently reported a 15 percent decrease in net income as a result of uncompensated care and $36 million spent on a proprietary EHR system. According to health system CEO Nancy Schlichting, “We knew that 2012 and 2013 would not be easy years for the system because of the Epic costs.”

The Boston Globe reported that fully one-third of Massachusetts’ hospitals are on or over the financial edge. Profit margins for the state’s acute care hospitals have fallen to an average of 2.1 percent as a result of government regulation and reduced revenue from the continuing economic malaise. Health IT is certainly not the only culprit, but if EHR systems can’t pay for themselves, they are making a bad financial situation worse for some hospitals.

While it may seem that the financial problem created by expensive, proprietary health IT is simple and straightforward—health IT expenses push the budget into the red, doctors see fewer patients, revenue falls and creditors come calling—healthcare economics are unique and apparently beamed from some other dimension where up is down and black is white, so linear explanations don’t really hold.

As Steven Brill’s article in Time magazine (subscription required) on healthcare costs makes clear, there is no underlying logic to hospital fees and billing practices. The chargemaster rules and answers to no one, which enables some supposedly non-profit hospitals and health systems to earn profit margins of 20 to 30 percent, sometimes more.

This scenario cannot continue for a host of reasons that culminate in only one that truly matters: Healthcare costs regularly destroy the financial lives of individual Americans and threaten to swamp the entire economy. The chargemaster can’t continue to print money for an expensive EHR when the healthcare fabric is starting to weaken at the seams.

“The ROI-rationale for the widespread adoption of health IT in the U.S. is a macro, national one. It’s a public health calculation that’s been mired in commercial/private health arithmetic,” wrote health economist and management consultant Jane Sarasohn-Kahn in 2008. “The denominator of these wrong-headed ROI calculations has been wrong-chosen: it’s been the individual physician practice, or the hospital, or the single health plan. The denominator is the public’s health.”

Not much has changed since 2008 in how we view the potential ROI from health IT. Indeed, the public health argument for health IT is currently the most viable argument for continuing down the same path, which is just fine from a federal government perspective. But individual hospitals and health systems don’t often make macroeconomic or macro-public health decisions. They decide what’s best for that hospital / health system.

Which makes it perhaps unwise to pay $80, $150 or even $700 million dollars for a proprietary model EHR unless you think you can continue to extract 200, 300 and 400 percent margins from informationally unarmed patients and an increasingly less powerful insurance industry.

Brill’s revealing expose makes clear that some of the things health IT was supposed to eliminate (extensive and duplicate lab tests and CT scans, etc.), thereby reducing overall health system costs, are exactly what hospitals use to boost revenue.

So, what are the chances hospitals will look to increase efficiency by eliminating profitable procedures, especially when they have this shiny new $750 million EHR to pay for and may see a decrease in revenue because productivity and patient visit numbers are down?

For an answer, let’s go back to the 2008 CBO report:

“The use of information technology might lead to greater efficiency in delivering health care and to higher-quality services, but financial incentives could constrain many of those positive changes. For example EHRs could provide physicians with a useful tool for reducing the number of unnecessary or duplicated laboratory tests that they ordered, but the likelihood of such reductions could depend on factors such as whether physicians were compensated for controlling the use of laboratory testing (as in some managed care plans) or whether they derived income from ordering more tests.”

Just like that, healthcare as not a business (A mission? A calling? A social good? A human right?) runs smack into healthcare as a business, and keeping the lights on always wins out, as it must.

That said, I believe the chargemaster will be tamed because the system as is cannot stand.  Will we be able to change the incentives for healthcare providers to improve efficiencies and eliminate waste? Maybe and maybe not. It’s a huge task about which I’m not overly optimistic.

What happens if we can’t?

There will be hospital bankruptcies—the dissolution of assets to pay off debts—which, for many citizens, will create a gaping hole in the fabric of the healthcare service system. Not all states and regions will follow the path of Massachusetts, but many will.

With all the economic uncertainty associated with healthcare at this point in time, it is a truly risky investment to pay multi-millions of dollars for a proprietary health IT system that, let’s face it, may take years to generate any concomitant savings, if it ever happens.

Edmund Billings is chief medical officer, Medsphere Systems Corporation, the developer of the OpenVista electronic health record.

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  • Pam L.

    How much federal stimulus money was set aside for EHRs again? $19 billion or something? It’s hard to imagine that that money couldn’t have been put to some better use.

  • buzzkillerjsmith

    Health IT will save trillions, the prices of houses always increase, and the Iraq War will cost a few billion, tops. I never believed any of these things, and I am sure that is the case with almost everyone else at this blog. But we don’t have lobbyists.

    • P. Littleton

      Remember when Obamacare was going to reduce the cost of health insurance by $2,500 for average families? Good times, good times.

  • azmd

    It does seem as though a well-designed EHR could create efficiencies and cost savings in the delivery of health care.

    One key to achieving this, however, is optimizing the system after it has been installed: i.e. providing customization based on user feedback. In my experience with EPIC, this is where EHR has failed. In meetings with EPIC trainers, when our staff brings up improvements that could result in more efficient use on the provider side, we invariably are told (in a patronizing tone), “You know, a PROGRAMMER has to make those changes, they don’t just happen.” Alternatively, we are shown some convoluted work-around that generally involves about 15 clicks and is demonstrated to the accompaniment of (also patronizing) comments about how we all need to “get more comfortable with technology.”

    So I suppose that the take-home with that is that a programmer’s time is more valuable than our own, in which case, the system is never going to work efficiently from the standpoint of delivering care. But, since EHR was really designed to make billing and data collection easier, why would any of us expect time to be wasted on clinical functions?

  • http://euonymous.wordpress.com euonymous

    In 2014 the federal supports for EMR end. At that point the concept of EHR either stands or falls on the basis of whether the users find it worthwhile. Since we are faced today with a huge array of incompatible or marginally compatible systems, it would appear that somebody should come up with a “free” database guaranteeing what information will be captured and how and then allow the marketplace to create different user interfaces around it. User interfaces for the patient, for the primary care physician, for various specialists, for the insurance industry, for researchers examining nameless but extensive data, etc. There’s money to be made, for sure, but the value of the system will only emerge from data compatibility. This is a pretty clear model. The internet wouldn’t have succeeded without a set of standards, right?

    • http://twitter.com/CostasBoussios Costas Boussios

      Would existing open source software like OpenEMR cover your “free database guaranteeing what information will be captured and how and then allow the marketplace to create different user interfaces around it” proposition?

      • http://euonymous.wordpress.com euonymous

        Possibly. I’d like to say an enthusiastic “yes”, but I’m not familiar with OpenEMR and whether it captures everything that all specialties might wish. In theory a strong, free and open db like that could be customized for different specialties and for general (patient and PCP) use. The money would be in the customization, support and training… we would not be faced with incompatible and, in some cases disfunctional, proprietary software. Open source software is a good starting place. Are you involved in that?

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