The answer: Unintended financial consequences, or UFCs, for short.

The scenario: A sophisticated medical center health system begins to roll out an expensive proprietary EHR and shortly thereafter sustains an operating loss, leaving no choice but to put the implementation on hold. The operating loss is attributed to “unintended financial consequences” directly related to buying a very expensive EHR system.

This is exactly the situation at MaineHealth, who selected Epic. As recently reported by Healthcare IT News, in the last few weeks Maine Medical Center President and CEO Richard Peterson sent a memo to all employees saying the hospital …

Peterson’s memo outlines the specific UFCs that explain, in part, MaineHealth’s operating loss:

• Declines in patient volume because of efforts to reduce re-admissions and infections
• Problems associated with being unable to accurately charge for services provided due to the EHR roll out
• An increase in free care and bad debt cases
• Continued declining reimbursement from Medicare and MaineCare, the state’s Medicaid program

These challenges are common to just about any medical system in the country, making MaineHealth potentially a harbinger of things to come for those hospitals and health systems that pay multi-millions of dollars for a health IT system.

The State of Maine is rightfully concerned about the developing financial scenario at Maine Medical Center and within MaineHealth. In a May 1 letter to the editor of the Boothbay (Maine) Register, local Selectman Stuart Smith questioned the EHR buying decision and associated operational costs that led Lincoln County Heathcare, a MaineHealth member, to close the local healthcare facility, St. Andrews Hospital.

It becomes important to understand what MaineHealth and arguably many other health systems face financially with regard to total cost of ownership (TCO), return on investment (ROI) and those dreaded, apparently unpredictable, UFCs.

Based on some widely accepted industry conventions, we can sketch out what might be MaineHealth’s costs:

• From the Peterson memo, upfront rollout costs for their system are pegged at around $160 million, which usually includes software licenses, interfaces, implementation and training. Often, these costs are paid by a health system’s nonprofit foundation.
• Annual maintenance and support costs are customarily 18 – 20 percent of rollout costs, which would be $28.8 million, in this instance, or $144 million over five years.

But to fully understand MaineHealth’s total costs, we have to also include the cost of staffing to support the system. Former CIO Barry Blumenfeld described their team in a November 2012 interview with Healthcare IT News.

To make it simple, and being somewhat conservative, let’s say the average salary for each MaineHealth staff member is $100,000.  Let’s also assume that if this many staff are needed to implement Maine Medical Center, at least as many will be needed to roll out and support the system for another eight MaineHealth hospitals and clinics over five years.  In this equation, total staffing would be $12.5 million per year or $62.5 million over five years. With a bit more math we can estimate MaineHealth’s TCO—all costs directly related to the EHR project annually and over 5 years.

In our back-of-the-napkin analysis, total annual operating expenses would be in the neighborhood of $41.3 million, meaning MaineHealth would have to create a combination of increased revenue and decreased expenses totaling $41.3 million annually for a positive operating gain. If we factor in the initial upfront costs under the assumption MaineHealth is financing that expenditure, positive ROI must be greater than the TCO of $366.5 million over five years, which requires increases in revenue and /or decreased costs averaging $73.3 million per year.

Keep in mind, these costs are not unintended; these are the intended financial consequences of buying and owning the system. In our calculations, we haven’t even included dollar values for declines in patient volume, fewer patient readmissions, inability to accurately charge for services, increases in free care and bad debt, and declining federal reimbursement.

And, according to former CIO Blumenfeld, MaineHealth expects to receive about $60 million in total for Meaningful Use, which might cover one year of the potential ROI gap, depending on how upfront costs are being covered.

What are the chances, then, when both the intended and unintended financial consequences associated with choosing an expensive proprietary EHR system total an estimated $73.3 million annually, that MaineHealth can ever actually achieve a positive ROI?  In the long run, will completely eliminating some sites of care contribute positively or negatively to ROI? How will it impact patient care for citizens of Maine?

The employees and patients of St. Andrews Hospital deserve an answer to these questions.

So, in light of the revealing MaineHealth situation, what questions should be asked by healthcare organizations that have not chosen an EHR?

1. Can we justify hundreds of millions for an EHR that contributes greatly to a negative financial position?
2. Shouldn’t a mature EHR that’s been rolled out to over a hundred organizations help control costs and lower financial risk?
3. Shouldn’t the vendor help manage risk and adapt the EHR to our particular environment?
4. Can we support these levels of EHR operating expenses in light of increasing constraints on reimbursement?

Perhaps this EHR was designed in less financially constrained times. Maybe it was created for organizations that have the financial resources to navigate UFC costs and complexity hiccups. But those are not the circumstances health IT faces now. Health care IT is at a tipping point where it must provide a clear path to positive ROI, support positive operating gains and help avoid UFC’s, not contribute to them.

In a Portland Press Herald article on the MaineHealth implementation from December of last year, Blumenfeld provides some insight into the mindset of organization leadership in making the EHR decision.

Blumenfeld said MaineHealth bought “the Cadillac” of electronic medical records systems, which has been adopted by several other leading national health care organizations, including the Cleveland Clinic, the Mayo Clinic and Geisinger Health System.

If this Cadillac is not too expensive to buy, it is certainly too expensive to own.

Stay tuned:  There is a Better Way.

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

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

So it’s remarkable and unexpected when any legislation exits a House committee with unanimous bipartisan support. It’s even more surprising when the legislation potentially threatens the status quo for established corporate interests—in this case information technology companies

The Federal Information Technology Acquisition Reform Act (FITAR)—sponsored by California Republican Darrell Issa along with Virginia Democrat Gerry Connolly, and supported by every member of the House Oversight and Government Reform Committee—threatens to put open-source software on par with proprietary by labeling it a “commercial item” in federal procurement policies. The proposal wouldn’t give open source a privileged position, just an equal one.

The legislation would also limit CIOs in federal agencies to one where there are sometimes many. And it would give the president the power to appoint these IT leaders. In short, FITAR would enable the president to act like a CEO and give agency CIOs the responsibility and flexibility to cut costs where they are cut-able.

Issa and Connelly’s proposed legislation was inspired by a 2010 Government Accountability Office report that identified 37 of 810 IT investments in the departments of Defense and Energy alone as possibly redundant. The GAO estimated potential savings over five years from eliminating these redundancies at $1.2 billion. Issa and Connelly did the math and saw billions more—an estimated $20 billion annually—in potential IT savings across the sprawling and expanding federal government complex.

Predictably, entrenched IT industry trade groups have come out against FITAR—strongly so in the case of initial drafts. So let’s look at what FITAR actually calls for:

• “… open source software is a valid procurement option that shall receive full consideration alongside other options…”
• “Nothing … shall be construed to modify the Federal Government’s long-standing policy of following technology-neutral principles and practices …”
• “To clarify that the preference for commercial items … includes all open source software that meets the definition of the term ‘commercial item’…”

The proposed legislation also calls on the federal government to establish standards for the acquisition of open source—standards that already exist for traditional proprietary software acquisition—to make the playing field level.

So what’s actually happening here?

Open source has grown up, and the usually-late-to-the-party federal government is catching up. The federal deficit is massive and growing, and proprietary systems can no longer assert a decided functional advantage over open source. They can and do, however, cost a lot more.

Homeland Security CIO Richard Spires, testifying before Chairman Issa’s committee, said that the government should not have an “open source first policy”, but should look at open-source options whenever possible.

To be fair, it’s more than the equal consideration of open source that has traditional vendors up in arms.  The FITAR legislation also calls for a Federal Infrastructure and Common Application Collaboration Center where the government can share technologies.  The Collaboration Center threatens to throw federal IT acquisition wide open, establishing standards that ensure the best, least expensive alternatives win out.

If you sell expensive proprietary software, this commoditization of federal IT acquisition scares you as much as open source does. Commoditization undermines the kinds of cozy public/private relationships—rent seeking to political scientists but corruption to the average American voter—that enrich corporations without a rigorous competitive process.

Ian Murdock describes the evolution of industry commoditization in an essay from Open Sources 2.0, by O’Reilly Press.

So, how do incumbent firms fight back against commoditization? Another moral of the story is that they shouldn’t. The forces of commoditization, being natural market forces, cannot be beaten. Yet time and time again, incumbent firms fight them. First, the challengers are ignored or dismissed as cheap knockoffs, unsuitable for any but the least demanding customer. Then, they are ridiculed, for lacking in imagination and innovation. Then, invariably, they are imitated—but by this point, it is too late, as the market has fundamentally changed, and the incumbent finds itself no longer able to compete because the former challengers are built for a commodity market while the former incumbent is not.

Proprietary technology firms are fighting the natural history of technology evolution. Commoditization and acceptance of open source is the norm across most all private technology markets. Issa and Connelly’s legislation applies these commonly held principles to the federal marketplace. Whether they know it or not, U.S. taxpayers stand to benefit from the competition, innovation and savings it will bring.

As Jon Stewart entertainingly pointed out on the Daily Show a couple of weeks ago, the cozy relationship between the Department of Defense and contractors with regard to health IT has not benefitted soldiers and veterans. In the best interests of American citizens and those who defend us, we really should look to proven, affordable IT resources to handle both federal budgetary decisions and the current IT standoff between VA and DoD.

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

Carlsbad, Calif. —Medsphere Systems Corporation, the leading provider of affordable and interoperable healthcare IT platform solutions, today issued a public statement of support for the Federal Information Technology Acquisition Act (FITAR). The House legislation (H.R. 1232), jointly sponsored by California Republican Darrell Issa and Virginia Democrat Gerry Connolly, recently moved with unanimous bipartisan support from the House Oversight and Government Reform Committee to the floor for a full vote.

If passed, FITAR would essentially prompt federal agencies to behave more like their private-sector counterparts by altering agency purchasing evaluation criteria to include fixed-price technical competition and open-source software as a “commercial item” in the Federal Acquisition Regulation. The bill would also limit federal agencies to one chief information officer (some currently have multiple), make the position a presidential appointee and increase budgeting power for CIOs within their agencies.

“Rep. Issa’s proposed legislation is good government because it empowers individuals to make decisions that improve efficiencies and save tax dollars,” said Medsphere President and CEO Irv Lichtenwald. “Private sector CIOs have to manage their IT budgets and they can choose systems that make the most technological and financial sense. Although strong opposition to the proposed legislation surfaced early among industry trade groups who benefit from the status quo, leaders in government IT have the responsibility and should also have the flexibility to do what’s best for the American taxpayer.”

According to estimates by Chairman Issa’s Government Reform Committee, FITAR could enable federal agencies to turn $20 billion normally spent on obsolete and ineffective IT into $200 billion focused on eliminating waste, fraud and abuse.

“Accomplishing major reform will not be easy,” Issa said in House testimony. “But streamlining our obsolete approach to federal IT needs to be at the heart of our effort to protect taxpayer dollars from further waste, fraud, abuse and mismanagement.”

Read more about FITAR: http://www.nextgov.com/cio-briefing/2013/03/oversight-committee-passes-it-reform-act/61984/

You know that already.

Healthcare IT companies welcome you to pay them great sums of money for enhancements to their closed systems. This is on top of substantial maintenance fees that may or may not lead to hoped-for updates in a timely fashion.  (With all due respect to the just-announced CommonWell Health Alliance, Meaningful Use does mandate interoperability. The participants are, in effect, marketing what they have to do anyway to try to differentiate themselves from Epic.)

The respective results of these two divergent approaches are probably also familiar to you.

Consumer technology has taken over the planet and altered almost every aspect of our lives. These companies and industries have flourished by knowing what customers will want before those same customers feel even a faint whiff of desire. We are both witnesses to and beneficiaries of dazzling speed-to-solution successes.

Back on planet health IT, the American College of Physicians reports that the percentage of doctors who are “very dissatisfied” with their EHRs has risen by 15 percent since 2010; in a poll, 39 percent said they would not recommend their EHR to colleagues and 38 percent said they would not buy the same system again.

I will argue that the difference between health IT and every other progressive, mature industry is the application of open source, open standards and, most importantly, open platforms. These platforms supporting interoperability and substitutability have enabled Apple and Google—and NOAA weather data, the Facebook Developer Platform, Amazon Web Services, Salesforce, Twitter, eBay, etc.—to drive innovation and competition instead of stifling it. They have created markets where everyone wins—the client, the application developer and the platform company.

The keys to open platforms are application programming interfaces (APIs) through which a platform-building company (i.e., Apple, Google) welcomes the contributions of clients and other companies. The more elegant the API, the more it can support true interoperability.

In the platform, innovators see market opportunity—an invitation to build on the open platform without time-consuming business negotiations. For the open platform provider, APIs also provide key benefits:

• Increased value of the system and platform for clients (the right kind of lock-in)
• Expanded solutions for the client while the company focuses on system and platform
• More rapid and affordable innovation and customization

Most importantly, as described by Kenneth D. Mandl, M.D., M.P.H., and Isaac S. Kohane, M.D., Ph.D, in a 2009 New England Journal of Medicine article entitled “No Small Change for the Health Information Economy”, open platforms create new markets driven by innovation of substitutable choices:

The Apple iPhone, for example, uses a software platform with a published interface that allows software developers outside Apple to create applications; there are now nearly 10,000 [currently well over 300,000] applications that consumers can download and use with the common phone interface. The platform separates the system from the functionality provided by the applications.

And the applications are substitutable: a consumer can download a calendar reminder system, reject it, and then download another one. The consumer is committed to the platform, but the applications compete on value and cost.

Specifically regarding health IT, Mandel and Kohane say:

The system should be sufficiently modular and interoperable so that a primary care provider could readily use a billing system from one vendor, a prescription-writing program from another, and a laboratory information system from yet another. Individual systems do not need to perform all functions … Just as consumers may swap out applications on their iPhones, physicians should be able to readily replace one referral-management system with another … the platform should be built to open standards, accommodating both open-source and closed-source software …

Imagine, as Mandel and Kohane did, that health care organizations did not have to look to a single proprietary vendor for all solutions. What if they could go to a competitive marketplace of ever-evolving applications in a host of categories that could all plug and play, integrate and enable collaboration? The NEJM article envisions prescribing, physician order-entry, medication reconciliation and drug-safety alerts available in the Medication Management app store. Under Public Health Reporting, physicians can purchase and download plug-n-play notifiable disease reporting, bio-surveillance, and pharmacosurveillance tools. For Decision Support, laboratory-test interpretation, genomics and guideline management are available.

The creative potential for a healthcare app store is huge.

The open-platforms vision is starting to become a reality in health care. Open source code and standards support collaborative communities at Open Health Tools and the federal government’s Open Source Electronic Health Record Agent (OSEHRA). Commercialized versions of the VA’s much-lauded VistA system incorporate API-enabling open development tools like the OpenVista Interface Domain (OVID), Medical Domain Web Services (MDWS or “meadows”) and FM Projection, a tool for the MUMPS database that enables structured SQL views of system data for various uses.  The open source MIRTH Connect interface engine can work with any of these open platforms to enable easier and more affordable interfacing than proprietary options.

Open platforms in health IT are inevitable. Exactly when OPEN becomes health IT’s de facto reality is impossible to determine. But we can be certain that it will happen because healthcare businesses focused on quality improvement and cost-effective care will demand it.

Up next:  The Three-legs of Healthcare Improvement: Evidence-based Medicine, Open Platforms and Collaboration

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

Click here to read the release in its entirety.

The predominant proprietary HIT vendors know this, yet have engaged in prolonged foot-dragging on interoperability and even basic data interfacing. Yes healthcare IT is their business, but interoperability is not in their nature.

As we’ve seen before, the problem is with the business model.

The proprietary business model makes the vendor the single source of HIT for hospital clients. Complexity and dependence are baked into both solutions and client relationships, creating a “vendor lock” scenario in which changing systems seems almost inconceivable.

In the proprietary world, interfacing with third-party products is a revenue generation strategy and technical challenge; the latter, though unnecessary, justifies the former. When we go looking for the reasons that healthcare is a laggard compared with other industries, this single-source model—the obstacle to much-needed competition and innovation—is a primary culprit.

To be fair, provider organizations, with little if any incentive to exchange patient data before the advent of Meaningful Use, haven’t shown much collaborative spirit either. In the fee-for-service model, why would a healthcare organization let patients slip from their grasp? Health reform is finally mandating needed change, but when will proprietary vendors actually enable the interoperability hospitals and practices soon have to demonstrate?

Recent rumblings from Washington, DC, suggest the feds are losing patience.

“If we do not see sufficient progress or … our policy goals for standards-based exchange are not being met, we will revisit these more specific measurement limitations and consider other policies to strengthen the interoperability requirements…,” Farzad Mostashari, National Coordinator for Health IT, said last week at the 2013 Academy Health National Health Policy Conference. “I want there to be no question about the seriousness of our intent on this issue. [The] bottom line is it’s what’s right for the patient and it’s what we have to do as a country to get to better healthcare and lower costs.”

Even before Mostashari’s comments made the news, rumors were flying of Cerner and McKesson working on an agreement to make their EHRs “interoperable”. Framed as a technical development in the world of health IT, the potential Cerner/McKesson agreement is nothing more than a business decision—an attempted differentiator—driven by the success of Epic.

In fact, the technical interfaces and open standards are well established. There is no great technical interoperability challenge that requires the coordinated efforts of two industry heavyweights. We should recognize Cerner and McKesson for making tentative steps toward openness, but casting this as some kind of technical breakthrough does nothing to advance the cause.

Indeed, when Cerner CEO Neil Patterson recently told a joint public hearing organized by the Office of the National Coordinator that “no single vendor” can meet all the needs of a provider, he was talking about Epic.

“Cerner is … committed to an open healthcare ecosystem… to enabling data liquidity for every product … to enabling our solutions to send and receive data in a universal manner … to putting these principals to work for every system in every venue of care.”

In other words, Cerner is willing to do everything Epic is not.

Again, while the commitment to data exchange is progress, we are still just talking about exchanging data, not true interoperability. Let’s look at a couple of definitions.

From the Institute of Electrical and Electronics Engineers (IEEE) Glossary definition on Wikipedia:

The ability of two or more systems or components to exchange information and to use the information that has been exchanged.

So narrowly tailored, this concept might be better defined as “interface-ability” or simply data exchange. And it completely lacks context, which matters a lot to those of us in health IT. There is no mention of the technical challenge and costs. There is no concept of separate systems operating together, which is requisite. And there is no mention of the alternatives.

Compare that with another interoperability definition found on Wikipedia:

Interoperability is a property of a product or system, whose interfaces are completely understood, to work with other products or systems, present or future, without any restricted access or implementation.

This definition, much closer to genuine interoperability, is arguably what Kenneth Mandl and Isaac Kohane of Harvard Medical School had in mind in 2011 when they published “Escaping the EHR Trap – The Future of Health IT” in the New England Journal of Medicine:

“We believe that EHR vendors propagate the myth that health IT is qualitatively different from industrial and consumer products in order to protect their prices and market share and block new entrants…”

Speaking to InformationWeek later on, Kohane went further and named names:

“Leading companies like Epic will claim that it’s unsafe for health IT to be done outside their monolithic system and that their monolithic system is actually enabling patient safety and the correct conduct of healthcare process.”

Mandle and Kohane describe an interoperability that goes beyond mere interfaces and data exchange. Indeed, the fulcrum of this advanced interoperability is open application programming interfaces (APIs), which enable applications to quickly, easily and affordably integrate with the core EHR. Think of all those iPhone apps in the iTunes store and then recall that Apple doesn’t even make open systems.

Right now open APIs are most frequently associated with the Web and work being done by companies like Facebook, Google, Salesforce and LinkedIn, which might seem irrelevant but is anything but. True interoperability in healthcare will result from tightly secured Web-based applications that enable a circle of accountable clinicians to work together with optimal patient health—not a billable test or procedure—as the ultimate goal. Does that sound like something simple data exchange can accomplish?

Policy and industry dynamics are moving toward data exchange, which is merely a precursor to a new healthcare business model and a safer health system with lower costs and better quality. As the paradigm shifts, we will follow other industries and move from interfaces to interoperability and real collaborative care. And we’ll recognize that open APIs eliminate the obstacles to interoperability that stifle competition and innovation.

Up next: Exploring how the open source industry has proven that interoperability is both possible and actually inevitable.

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

We incentivized comprehensive IT adoption, making it easier to bill for every procedure, examination, aspirin, tongue depressor, kind word and gentle (or not) touch without first flipping the American healthcare paradigm on its head, if such a thing is even possible.

According to analysis by the New York Times, hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier. Overall, the Times says, “hospitals that received government incentives to adopt electronic records showed a 47 percent rise in Medicare payments at higher levels from 2006 to 2010 … compared with a 32 percent rise in hospitals that have not received any government incentives …”

To paraphrase the mantra of Bill Clinton’s successful 1992 presidential campaign: It’s the system, stupid. More specifically, it’s the business model, stupid, the fee-for-service system in which electronic health records are enabling tools.

It’s also the law of unintended consequences. You know … you take action, planning on this but instead you get that.

Like the introduction of cane toads in Australia to kill beetles (they couldn’t jump high enough). Like letting mongooses loose in Hawaii to manage the rat population (they preferred native bird eggs). Like Kudzu, the insatiable vine that’s devouring the South.

According to the authors of the RAND report, the problem is with the incentive structure that encourages more tests and procedures. Well, of course it is. Doctors and administrators have a clinic or hospital to run. They have expensive invoices from Epic and Cerner to pay. They can now track and bill for all this stuff they used to not get paid for. Are we surprised?

And meanwhile, fee-for-service leads us down a contradictory rat hole of massive healthcare costs and lousy public health.

But, here in the beginning stages of healthcare reform, I’ll argue that we should banish the doom and gloom until we can see the bow of the boat going over the falls. Some organizations—in the current parlance we might call them extant Accountable Care Organizations (ACOs)—are getting it right and getting paid for quality results, and RAND holds them up as noteworthy exceptions:

• The U.S. Department of Veterans Affairs: Tell Joe citizen that the VA is one of the nation’s best healthcare systems and he generally responds with unsavory adjectives attached to “liar.” But it’s true. Since the VA reinvented itself in the 1990s, statistics show the agency outperforms the private hospital sector. By how much? The Congressional Budget Office found that over a five-year period in the 2000s the VA’s costs went up 1.7 percent while Medicare costs rose 29.4 percent. Oh, and a nurse at the VA invented bar coding at the bedside, creating a simple innovation that benefits all of healthcare.
• Intermountain Healthcare: Like the VA, Salt Lake-based IHC spent decades developing a homegrown health IT system, working deliberately with physicians to test and make improvements based on results. The result is that IHC has made significant improvements in quality and outcomes at lower costs.
• Kaiser Permanente: Working with Epic, Kaiser has spent billions (yes, with a “B”) on making comprehensive health IT a tool in an integrated healthcare delivery system. According to the Commonwealth Fund, Kaiser has engineered a host of quality improvements yielding measurable improvements in patient health.

These are examples, once again, of integrated healthcare delivery systems. And the common thread among them is the use of EHR as a tool designed to enable a comprehensive care improvement process:

• Create a coordinated care improvement / cost management plan.
• Develop the electronic system—or implement it, in Kaiser’s case—the plan requires.
• Tinker, tinker all the time to make essential improvements.

For far too many hospitals, the current healthcare overhaul skipped the first step and it remains to be seen whether facilities and organizations will engage in the third. And the systems they’re putting in originated in billing and “Frankensteined” into something that addresses clinical concerns to facilitate billing. (For those keeping track at home the common thread here is billing.)

Heritage matters. Some systems are designed and configured—and effectively used—to enable billing, and others are used to enable improved care and controlled costs.

The success of the VA, IHC and Kaiser raise fundamental questions about what kind of organizational structure can facilitate success in this brave new healthcare world. Will the U.S. become a patchwork of regional healthcare organizations? We know that corporate healthcare is gobbling up independent physicians. Are the days of private doctors performing services and getting paid for them coming to an end? Maybe they are. Maybe they should be.

Because what we’ve done in the past has not worked out the way we hoped.

Like cane toads and kudzu.

Despite the best efforts of the federal government to plan the ongoing healthcare transformation and turn the healthcare ship of state in a controlled and deliberate manner, I don’t think they know exactly what’s going to happen. They’ve put the incentives in place, and they’ll soon introduce more focused on interoperability and accountability of care, but they aren’t exactly sure how it will turn out.

But neither do the authors of the RAND study. While they identify the fee-for-service business model as a fundamental stumbling block on the path to meaningful reform, they don’t offer any recommendations on how to alter the underlying structure.

So, we don’t know exactly where this boat we’re all in is headed. Probably best to listen intently for a distant roar and then paddle as if your life depended on it.

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

What’s that? You don’t feel like the recent RAND report, which basically says that a 2005 RAND study financed by GE and Cerner was wildly optimistic in predicting about $81 billion in potential health care cost savings through widespread adoption of electronic health records, qualifies as a genuine hoax, controversy, scandal?

Me neither.

But it does neatly frame what is arguably a unique characteristic of the healthcare industry—a trait that extends to peripheral industries as well. Basically, healthcare is an interconnected environment. Call it the systems theory of healthcare, co-dependency … or just regular dependency. Call it what you want, but there is an interconnectedness in healthcare that we ignore at the expense of national wellness.

Witness key data points provided by the RAND report:

• Modern health IT systems are not interconnected and interoperable, functioning “less as ‘ATM cards,’ allowing a patient or provider to access needed health information anywhere at any time, than as ‘frequent flier cards’ intended to enforce brand loyalty…”
• Neither are they widely adopted, with an estimated 27 percent of hospitals utilizing a basic electronic record. Without broad adoption, interoperability is far less relevant.
• Improvements in quality of care / patient safety and reductions in healthcare costs (which have grown by $800 billion since 2005) are not manifesting with EHR adoption, in part because hospitals and clinics are rushing to adopt mediocre solutions and garner federal funds.
• The provision of care is the same as it ever was, even though EHRs are frequently promoted as the optimal tool for a different kind of care.

The reasons for these disappointing stats are readily apparent and unalterably interconnected.

1. We still live in a fee-for-service healthcare system: Doctors and hospitals are still paid based on the procedures and examinations they perform. And because most EHRs evolved from billing systems, it now appears EHRs have made it easier to bill but not easier to provide quality care.
2. Many doctors are not on board: In a fee-for-service system, doctors understandably don’t want to adopt a technology that will make their jobs harder. They don’t want to see fewer patients in a day and bill less than before they invested millions in health IT. And they don’t want to stay at work until after dark updating patient records. They can hardly be blamed for not embracing this scenario when …
3. EHR solutions are hard to use: We’ve succeeded in creating technological solutions that would be most impressive to a physician in 1985. Now? Not so much. And the vendor community really doesn’t want to do the interoperability dance to the extent that the RAND report said some industry insiders are convinced many health IT vendors are “opposed to interoperability.”

As I survey the health IT landscape, I see four groups of stakeholders—health IT vendors, hospitals and clinics, government, and patients—with sometimes overlapping and sometimes conflicting goals. If this health IT project is going to make a difference in healthcare, each group may have to take some initiative and make a few sacrifices to keep this whole endeavor on the rails.

• Health IT Vendors: Are we really making systems doctors want to use? If not, we need to step it up and improve the quality of our offerings, and we need to make our systems communicate. Can the format wars between Blu-Ray and HD DVD, Betamax and VHS, in consumer electronics serve as some kind of industry standards guide? Can HIMSS play a constructive role?
• Hospitals and Clinics: Admittedly, significant change will be difficult while fee-for-service is predominant, so some initiative will be required. Until EHRs are used to keep patients well instead of billing for itemized treatments after they are already sick, costs will not come down.
• Government: Personally, I think the use of incentives / penalties by the government is appropriate. I know many people disagree and think the market should be permitted to function. But for how many years did the AMA, AHA and other industry groups fail to act before the government stepped in? Healthcare threatens to bankrupt the nation. We need action. And if healthcare IT can’t establish standard formats ourselves, I would argue the government is correct in doing so.
• Patients: Even when you visit those hospitals and clinics that offer personal health records, you aren’t using them. As a consumer of healthcare, you need to take some control over the product you receive and insist on quality and prevention. Do your research. Be aware of your own personal health data. Ask your physician why he still uses paper.

Can we all work together to ensure this grand health IT experiment contributes to saving healthcare in America? I don’t know. If it requires putting aside personal and organizational concerns for the greater good, I’m skeptical.

What are your thoughts? Should we slow the Meaningful Use train, as an increasingly loud chorus suggests? Who should step up, and how, to make this all work? Are we all just rearranging the deck chairs?

Coming soon:  Looking for a culprit? It’s the business model, not the technology.

Edmund Billings, MD, is the chief medical officer for Medsphere Systems Corporation. www.medsphere.com

Scratch that.

Does anyone besides Judy Faulkner and Neal Patterson believe these are the best of times? (I mean, everyone knows that Dramatic Transition + Industry-wide Upheaval + Piles of Cash = Satisfaction / Contentment, proving the point mathematically.)

The question: At what cost to overall healthcare improvement do Epic and Cerner (and others, to be fair … except you, Allscripts) reap massive profits?

The short answer: We don’t really know.

While it is generally acknowledged by most (certainly not all, which you know if you’ve spent any time on HIStalk) that the ready availability and automated cross-checking of electronic health records improves care, there is no definitive study showing dramatic clinical improvement, demonstrable return on investment, etc.

Indeed, we now have a number of studies suggesting exactly the opposite:

• The implementation of an EHR upends organizational structure and often slows down the provision of care.
• The introduction of an EHR into a dysfunctional organization tends to exacerbate, not alleviate, said dysfunction.
• Much of the promise of health IT is in interoperability, and the industry is a long way from reaching that goal.
• Physicians generally dislike most health IT solutions.
• Patients would rather the doctor look at them instead of the monitor.

This is not to say that healthcare should bring the EHR train to a screeching halt. We know how technology has transformed other industries. We know that paper records are archaic and put patients at risk while asking them to maintain endless patience when the same test has be performed a third time. And we know that electronically is the only way information can be shared in a timely manner.

So, while we may not know what the overall cost of corporate profits are to healthcare, we do know that they are really, really high. You’ve seen the figures associated with Epic contracts.

The truly important point is that the initial value of Epic and Cerner contracts isn’t even a reliable indicator of overall cost. According to a recent study by the consulting firm Katalus Advisors, hospitals that adopt Epic can expect to pay an additional 40-49 percent of initial contract value for “varying upgrade costs.” For Cerner, estimates were a slightly more reasonable 30-35 percent of contract value.

Based on these figures, Duke University Health System and Partners Healthcare can expect to pay an additional $350 million to Epic on top of the $700 million contracts they already signed. UC San Francisco will probably pay an additional $75 million for their Epic relationship.

Generally speaking, what they will get for that investment is not lower costs and greater efficiency. According to a report by the RAND Corporation that evaluates predictions made by a 2005 vendor-financed RAND study, expected cost savings and productivity benefits associated with EHR implementation have not materialized.

Why not?

In a nutshell: Sluggish adoption. Clinician intransigence. Poor planning and change management. Lack of interoperability.

Other than interoperability, these are organizational constraints, which are the constant in the EHR adoption equation. Which begs the question, why spend multi-millions of dollars—plus as much as 50 percent of contract value on top of that—for systems that are not interoperable and may threaten the financial viability of your hospital and organization?

The simple truth is that EHR systems do not currently offer cost savings equal to purchase price. With some solutions, there’s an uncrossable chasm between sticker price and ROI. And we’re talking about the financial viability of hospitals, here, not breakfast cereal. If those Lucky Charms disappear from the shelves, your kid may throw a tantrum, but nobody will get hurt.

Purchasing an EHR is not like a buying a car that you just get in and drive away. It’s like buying a car that you have to stop and recalibrate every mile with the assistance of the trained experts in the back seat who charge you a fee every time they have to listen to you speak or look under the hood. In this situation, paying less for the car is probably a good idea.

We have the most fractured and expensive healthcare system in the developed world, and the way we’re pursuing health IT adoption is making that worse, not better.  Hospitals and health systems must show some restraint and take control, forcing health IT vendors to behave in a way that at least adds as much value to American healthcare as it takes out in cash.

Edmund Billings, MD, is the chief medical officer for Medsphere Systems Corporation. www.medsphere.com