Limits and Lags in Healthcare Productivity

In a recent Health Affairs blog, Alex Goldsmith does a back-of-the-envelope analysis of the peculiar economics of healthcare. According to the Bureau of Labor Statistics, employment in healthcare increased by 1.149 million people from 2007-2011. He contrasts this increase in employment (read increased cost) with declining hospital admissions, low single-digit growth in hospital outpatient volumes and declining physician office visit volume (read declining economic output). A New England Journal of Medicine article published in Oct. 2011 also showed a net percentage decrease in productivity growth (see figure below).

Over this same time period there has been steadily increasing investment in IT for hospitals and doctor’s offices much of it as a result of the HITECH Act that was passed in 2009. Compared to ten years ago, more healthcare workers are doing less healthcare with more information technology. And little over a week ago a Wall Street Journal op-ed by Stephen Soumerai and Ross Koppel pulled no punches, calling the savings to be gained from IT in healthcare “chimerical.” We have known for a long time that providers themselves insist that productivity drops after installing an EHR and there is little evidence to refute such claims and plenty of evidence to support them.

The absence of productivity improvements or cost savings after big IT investments is neither new nor unique to healthcare. Way back in 1987, Nobel laureate and MIT professor Robert Solow famously said, “We see computers everywhere but in the productivity statistics.”  For the next ten years, economists leveled forests (this was a pre-internet time after all) trying to explain away the Solow productivity paradox. While the dotcom boom rendered productivity paradoxes as interesting as bell-bottom pants, few would now contest that increased use of IT drives productivity improvements. It is just a long journey to get there with some successfully surviving the journey and others not. There are plenty of examples in other industry sectors of companies that did not effectively adopt and use IT, ultimately contributing to their downfall.

The EHR Incentive Program and all of the other IT-related ONC and CMS programs have a host of now familiar policy objectives. The fact that IT is at their center says loudly that CMS is trying to coax incremental productivity improvements from a reluctant system.

So where are the productivity improvements in healthcare? While we are only one year into the meaningful use (MU) saga, we would argue that we are seeing three things: 1) the limits to IT as a productivity-boosting panacea, 2) a lag between the investment in IT and a productivity payoff and 3) an existing reimbursement model that does not effectively support IT adoption that is in alignment with meaningful use objectives.

Providers that invest: Most of the current incentives for IT adoption are aimed at the point of the healthcare spear: CMS is willing to pay most frontline clinicians in private practices, clinics and hospitals to adopt IT. These same frontline clinicians, however, are increasingly frustrated and burned-out by the fee-for-service treadmill. Simply getting a primary care physician (PCP) to meaningfully use an EHR will not allow her to suddenly double her patient load. If anything, it will likely decrease office productivity for at least a year as all staff members become familiar with and effective in using an EHR.

Measures like the Stage 2 MU objectives build on that basic EHR to let that same PCP leverage work done in other parts of the healthcare system to deliver more coordinated care. The PCP still can’t double her workload but she might be able to accomplish more in each encounter. In this instance, we see the lag between the investment in a basic EHR and the enhanced productivity of a more interoperable EHR, a time lag measured in years.

Providers that do not invest or under-invest: These incentives are not available to some segments of the provider community (e.g. skilled nursing facilities, behavioral health facilities). The limit is that non-incented providers presumably will invest modestly or not at all in EHRs, interoperable or otherwise. In this instance, the lag may well be a very long time.

Further, incentives are voluntary. Eligible providers can IT-up and take the money — or not. Nearly half of eligible hospitals have collected something under the EHR Incentive Program. The ranks of qualifying EPs, while still low, continue to grow and we will likely see a majority of EPs sign-on to this program.

The Wall Street Journal op-ed claims that ONC and providers are captives of the healthcare IT vendors.  The authors suggest that vendors, presumably in an effort to protect their markets, blocked efforts to make EHRs more interoperable, effectively blunting cost or productivity improvements. This is a fair criticism, probably true, and a clear limit to what we could expect from Stage 1 MU.

However, providers in a pure fee-for-service world have rarely found sufficient value in adoption of EHRs to justify the investment, thus the need for incentives. As the market slowly shifts reimbursement to value-based metrics, the justification to invest in an EHR begins to look more attractive to a PCP. Coupling this with future, MU Stage 2, certified EHR solutions that will better support care coordination across a heterogenous EHR landscape in a given community, the potential for true improvements in productivity appear promising. There is even a potential silver lining for providers that do not invest or under-invest as even the left-behinds have at least have a fax machine and a browser and may begin to enjoy some of the productivity gains of a reformed, networked system.

The network effect that kicks-in over time may like a rising tide, lift all boats. But this is a very slow tide that will rise over many years. Now the question is: How many of those boats have holes in them and will forever rest on the ocean’s bottom or does the tide simply rise too slow and others just pull their boats out of the water?

Note: This post has been authored by our newest analyst, Brian Murphy a former employee of Eclipsys, IBM and others as well as a former analyst for Yankee Group. Find out more about Brian on our About page.

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Benchmarking Payers Adoption of Consumer Tech

Awhile back, a large health insurer (payer) commissioned Chilmark Research to do a market scan on how payers across the country were using emerging consumer technologies to engage their members. We found this project to be quite interesting and rather than have much of that research sit on the shelves forevermore, we decided to build upon it.

Today we are releasing the results of that effort.

Our latest report: Benchmark Report: Payer Adoption of Emerging Consumer Technologies takes a close look at over 40 payer (health insurers) initiatives that are using a wide variety of consumer technologies (apps, social media, games, etc.) for member engagement. Here’s the PR announcing the report’s release.

Now it is well-known that payers have had a very mixed record in engaging their members. Part of the problem has been trust as members are justified in taking a cautious approach when sharing their health information with payers for fear of future denials. Secondly, many payer initiatives have been half-baked wherein payers have not been fully engaged themselves in the concept of member engagement.

But as we pointed out in a post earlier this summer, this is all beginning to change. Numerous market forces are now pressing down upon payers and payers are increasingly coming to the realization that they need to deploy member engagement solutions that work. Payers are now going to where consumers already are seeking to engage their members via a variety of consumer-based technologies. This report is our initial effort to gain a greater understanding of what payers are doing today and provide some guidance as to how their efforts will evolve overtime.

One thing we have learned in the course of our research is that despite all the talk, the majority of these efforts are in their infancy and that the vast majority of payers have not even begun to venture down this path. Therefore, we intend to update this report on a periodic basis to benchmark payer adoption of consumer tech in support of member engagement and gain an even deeper understanding of what works and just as importantly, what does not.

Thanks to the many that we have interviewed over the course of the last several months to compile this report as your inputs have been invaluable.

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Why We Won’t See EHR Consolidation Anytime Soon

All too frequently I get the question:

When will we see the EHR market consolidate?

Not an unreasonable question considering just how many EHRs there are in the market today (north of 300) and all the buzz regarding growth in health IT adoption. There was even a recent post postulating that major EHR consolidation was “on the verge.” Even I have wondered at times why we have not seen any significant consolidation to date as there truly are far more vendors than this market can reasonably support.

But when we talk about EHR consolidation, let’s make sure we are all talking about the same thing. In the acute care market, significant consolidation has already occurred. Those companies that did not participate in consolidating this market (Cerner, Epic & Meditech) seem to have faired well. Those that pursued a roll-up, acquisition strategy (Allscripts, GE, McKesson) have had more mixed results.

It is the ambulatory sector where one finds a multitude of vendors all vying for a piece of the market and it is this market that has not seen any significant consolidation to date and likely will not see such for several years to come for two dominant reasons.

First, you need to be half crazy to do an acquisition. As nearly two-thirds of all acquisitions fail, the odds are stacked against you. Therefore, you need to be darn sure that this acquisition makes sound business sense before pulling the trigger.

Second, the ambulatory EHR market is simply not ripe for consolidation. The reason is simple. To remain viable in the market, EHR vendors must ensure that their products meet Meaningful Use (MU) requirements and meeting those requirements requires hefty investments.

Virtually all EHR vendors invested resources to get over the Stage One hurdle. In fact, the federal largesse of the HITECH Act attracted a number of new EHR entrants to market and likely kept a many EHR vendors afloat who would have otherwise gone under.

Stage Two’s certification hurdle has yet to be released but will assuredly require a continued and potentially significant investment in development resources by EHR vendors to comply. Same holds true for future Stage Three certification requirements.

At this juncture, it would be foolhardy to try and execute an EHR acquisition roll-up strategy. The technology has yet to stabilize, significant development investments are still required and most vendors do not have sufficient market penetration. Better to wait until the dust settles and clearer stratification of the market (who will remain viable, who will not) becomes apparent.

An Example from Manufacturing:
In my many years as an IT analyst I’ve seen few instances where acquisitions have actually worked out well for all parties concerned. When I led the manufacturing enterprise analyst group at a former employer I watched as two separate companies (Infor & SSA) executed roll-up acquisition strategies in the mature Enterprise Resource Planning (ERP) market.

Much like the ambulatory EHR market, these two companies targeted the low-end of the ERP market (small manufacturers). ERP companies acquired had two defining characteristics: stable platforms and reasonable penetration in their target markets.

Infor and SSA executed their strategies skillfully acquiring multiple companies; promising customers never to sunset a product; and meeting their investors’ goals by lowering operating costs (reduce duplicative administrative costs across acquired companies.

Post acquisition, Infor and SSA did not invest heavily in development, simply doing the minimum necessary to meet customers’ core requirements. Ultimately, Infor acquired SSA and Infor remains one of the dominant ERP companies in the market today.

A similar scenario will play-out in the ambulatory EHR market, it just will not be this year or next or even the one after that. Look to a couple of years post-Stage Three, for the long-awaited consolidation that so many have predicted to finally occur.

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Implications: Supreme Court Gives Thumbs Up to ACA

This morning, as most of you already know, the Supreme Court ruled that the Privacy Protection and Affordable Care Act (commonly known as ACA) is constitutional and basically left the entire law intact. While it was no surprise that this was a close 5-4 decision, it was surprising that rather than rule that certain sections of the law were unconstitutional (e.g., the individual mandate), it was either an all-in or all-out dividing line (those in dissent would have thrown the entire law out the window). In fact, among our esteemed and we like to think highly knowledgeable readers, two-thirds voted in our prediction poll that ACA would be circumscribed by the Supreme Court while 17% felt the law would be upheld in its entirety.

Implications of Decision:
We are an analyst firm that is focused on the adoption and use of healthcare IT. Thus the implications of the Supreme Court decision which follow are focused on just that:

Healthcare systems will continue to aggressively move forward to form comprehensive care delivery systems (acquiring practices, long-term care facilities, etc.) to more effectively manage their patient populations across care settings. This will in turn require greater clinical connectivity and integration across these care settings. Expect to see very strong demand for health information exchanges.

Payers will continue to struggle with improving their operating margins. Some, such as United Health Group and Aetna, have ventured into the more lucrative and higher margin HIT market via acquisitions. Expect to see other payers make a move here as well jumping into the HIT market via acquisition(s).

Payers will also venture directly into care delivery via partnerships with large providers to stand-up ACO-like entities (e.g., Blue Cross of CA & Dignity Health) or acquire (e.g., Highmark and West Allegheny). We may also see some payers be quite innovative and begin providing more state-of-the-art, low cost concierge care services such as One Medical to serve the vast pool of some 30M+ new members nationwide.

To effectively and efficiently survive under future bundled care reimbursement models, hospital systems will finally have to get truly serious about patient engagement. No longer can they view this as just something for the marketing department to deal with (listen to yesterday’s podcast) but will need to actively engage with patients and aggressively encourage self-management of chronic diseases. This need will lead to a blossoming of innovation in new solutions, be they mobile, telehealth, whatever you want to call it to improve patient adherence outside of the clinical setting.

Got Analytics? Yes, analytics is going to be huge but today, most analytics solutions are not up to the task of serving all healthcare provider needs, or at least no single solution/vendor is. Providers will need to accept the fact that for the foreseeable future they’ll be purchasing best-of-breed solutions. But providers also need to do their homework as we predict that there will be a significant amount of consolidation, via acquisition, in this market over the next five years. And one last word of advice to providers, don’t count on your EHR vendor to deliver these solutions anytime soon.

Of course there is far more that we could delve into on the implications of this ruling to the HIT market but for now believe we have provided enough to get your collective  juices flowing. Is there anything we missed that you believe is screaming out loud in the HIT market due to this decision? If so, please let us know via a comment – we love comments!

In closing, hope all have a great July 4th week ahead and…

God Bless America

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Quick Poll: What will Supreme Court Rule?

Figure Source: usnews.com

This morning received notice that the Supreme Court will make its final rulings before summer recess on Thursday, June 28th. Among those rulings is the heavily politicized and closely watched decision on the Patient Protection and Affordable Care Act (PPACA), often referred to as Obamacare. In all fairness, Republican nominee Mitt Romney has his fingerprints all over Obamacare as PPACA was modeled after Massachusetts’ own healthcare reform law that was signed into law by then governor Mitt Romney.

Enough history and on to the poll.

With the rule pending, wondering what the readership of this site, which of course are those that seem to eat and breath healthcare in one form or another, believe the Supreme Court will rule. Based on some simple research of our own, we see four possible rulings. Now it is your turn to place your vote as to final outcome.

[polldaddy poll=6342037]

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Some Areas We Covered in May Monthly

Earlier this year Chilmark Research launched its latest service, the Chilmark Advisory Service (CAS). One of the benefits of CAS is that subscribers receive a continuous feed of our research, from major annual reports such as the recently released 2012 HIE Market Report, to Quarterly Reports (e.g., mHealth Adoption for Patient Engagement) and exclusive to subscribers, the Monthly Update. Of course, subscribers also get unfettered access to our analysts to answer any specific questions they may have.

For the merry month of May, the Monthly Report touched upon four topics that are abstracted below:

Social Games for Wellbeing, Courtesy of Your Health Insurer
Much of this story was pulled from the forthcoming report that Cora is authoring that takes a close look at how payers are adopting consumer technologies (social media, gamification, mobile apps, etc.) to more effectively engage their members in healthy behaviors. This story looked at the current initiatives of Aetna, Blue Cross of California, Cigna, and Humana, each of which is taking a slightly different approach to more actively engage their members.

When Behavioral Health Goes Mainstream Will Technology be Ready?
This year, five states received grants of $600K each to explore how they would integrate behavioral health data into their statewide HIEs.  Analyst Naveen interviewed several stakeholders about how they would actually address the technology and policy hurdles to incorporate such data into an HIE. One of his findings, which he details in this story, is that current technology offerings from HIE vendors are ill-prepared to address this growing need to fold in behavioral health data into the HIE. Secondly, there remain significant policy issues that need to be addressed as behavioral health data is some of the most sensitive and protected health data.

Filling Gaps Separating Behavioral Health from the Healthcare Continuum
We had another story on the relative state of technology adoption within the behavioral health community. Our interviews with several stakeholders uncovered a market that is even further behind (at least 10-15 years) the rest of the medical community in IT adoption and use. As public health officials, healthcare organizations and others come to the realization that a significant proportion of chronic disease patients have a co-morbidity with a behavioral health issue, they are also coming to the realization that more effective care coordination must also occur with behavioral health specialists. John (the younger) takes a close look at what may develop in this market to fill the current gap.

Feds Look to Tighten Privacy & Security of HIEs
This last story took provided subscribers an assessment of the current Request for Information (RFI) for the Nationwide Health Information Network (NwHIN). The RFI was released on May 10, 2012 and is the an attempt by the U.S. government to establish a clear set of governance rules for the sharing and use of patient data within an HIE, and of course more broadly across the U.S., via the NwHIN. While the objectives are noble and to some extent needed, our assessment is that in several areas the RFI goes too far and will significantly hinder HIE innovation, deployment and adoption.

If you wish to learn more about CAS, please head on over to the Research Services page and towards the bottom there is a slide deck that provides a prospectus on CAS. If that piques your interest, drop us a line and we’ll be more than happy to answer any further questions you may have regarding the service.

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