“Our nation cannot control runaway medical spending without fundamentally changing how physicians are paid.”

The National Commission on Physician Payment Reform, March 2013

In March 2012, the Society of General Internal Medicine (SGIM) assembled an expert commission to look at ways of changing physician reimbursement in order to improve patient outcomes and control exploding expenditures. One year later, on March 4, 2013, SGIM’s National Commission on Physician Payment Reform (NCPPR) released its recommendations which call for transitioning most physicians out of the traditional fee-for-service (FFS) reimbursement system over the next decade. The NCPPR is an independent commission comprised of twelve members representing various realms of academia, industry, and government. The commission is chaired by former Senate Majority Leader William “Bill” Frist, M.D. and Steven Schroeder, M.D. of the University of California, San Francisco. Robert Wood Johnson Foundation (RWJF) is a co-sponsor of NCPPR along with SGIM.

Recognizing the reality of how entrenched the FFS system is in the U.S. healthcare system, the NCPPR foresees a two-phase transition period. First will be a five-year period designed to address the most pressing flaws and inefficiencies in physician reimbursement practiced by government and commercial payers. This phase should incorporate the majority of physicians in a mix of new payment models and tighter controls on traditional FFS. This initial phase will be followed by another five-year period where remaining physicians will be brought into a fixed-payment reimbursement system.

NCPPR's Recommendations for Transitioning out of FFS

The following summarizes NCPPR’s core recommendations -

• Stand-alone FFS payment is inherently inefficient, causes problematic financial incentives, and should mostly be eliminated and replaced by a fixed-payment model.
• A five-year transition period should begin, incorporating testing of a reimbursement system based on quality and value with the goal of broad adoption within ten years. Features of this transition should include -
• Encouragement of behavior that improves quality and cost-effectiveness and penalizes misuse or overuse of care
• Government and commercial payers should increase annual updates for evaluation and management codes; updates for most procedural diagnosis codes should be frozen for a period of three years
• Eliminate higher payment for facility-based services that can be performed in a lower-cost setting
• Incorporate quality metrics into the negotiated reimbursement rates in FFS contracts
• Encourage small physician practices accepting FFS to form virtual relationships and share resources to achieve higher quality care
• Focus initial fixed payment programs on areas where significant potential exists for cost savings and higher quality such as chronic care populations
• For providers in fixed payment models, incorporate measures to safeguard access to high quality care, assess the adequacy of risk-adjustment indicators, and promote strong physician commitment to patients
• Eliminate the Medicare Sustainable Growth Rate (SGR)
• Pay for repeal of the SGR with cost-savings from the Medicare program including both cuts to physician payments and reductions in inappropriate utilization of Medicare services
• Increase the transparency and diversify membership for the AMA’s Relative Value Scale Update Committee (RUC) that sets rates for Medicare reimbursement. In addition, CMS should develop an open, evidence-based, and expert processes to establish and update relative values

FFS and Lack of Pricing Transparency - The Root of All Evil?

The fee-for-service reimbursement system is characterized by separate payments for each medical procedure, office visit, or ancillary service. There is growing consensus that FFS simply does not encourage clinicians to practice cost-effective medicine and instead encourages them to perform more procedures (and more complex procedures) in order to earn more money or, perhaps, to practice defensive medicine due to fear of malpractice lawsuits. In addition to causing cost inflation, FFS is widely believed to contribute to the crisis in primary care, where 60 million patients lack access to a physician due to a growing shortage of providers. This is because the FFS system encourages higher payments for procedures performed by specialists verses primary care providers. It’s no surprise that healthcare cost inflation is a situation that is causing considerable angst across a wide swath of U.S. society, particularly as patients are paying an ever-greater portion of the bill. As Steven Brill noted in his brilliant piece published in Time Magazine on Feb. 20, 2013 (Bitter Pill: Why Medical Bills Are Killing Us), “Health care is eating away at our economy and our treasury”.

It's Not Going to Happen Over Night

Moves towards alternative payment methods for physicians and bundled payments are not new to the U. S. healthcare system, but are gaining considerable traction today thanks in no small part to the Accountable Care Act (ACA). Fixed or bundled payments for healthcare are believed to drive efficiencies that help control overall costs. Public and private health insurers, as well as employers, recognize the importance of changing the way physicians are compensated so that the provision of care and the payment for services is more closely aligned with preventive services, improved clinical outcomes, and enhanced patient safety. The NCPPR report adds to the momentum for the need to address the inherent inefficiencies around FFS reimbursement and to demystify the pricing of medical services. In calling for a phased transition period, I believe the NCPRR lays out a realistic time frame for achieving the transformation away from FFS, particularly given the influx of new patients coming into the system as a result of ACA.

The End of FFS Does Not Mean the End of Administrative and Documentation Hassels

The move away from FFS to a fixed payment environment presents considerable financial risk for physician practices and they will need time to adjust their workflow. Physicians will be strongly motivated to put systems and procedures in place that will help them effectively manage financial risk-informed contract negotiations with payers. In the short term, this will likely result in a higher burden for administrative and clinical documentation requirements for physician practices. During the next five years, expect to see a continued flurry of new products and services specifically desgined to help smooth the many pain points associated with transitioning out of FFS. The move to value-based reimbursement is already a key driver for health IT systems; the momentum will accelerate going forward.

(Share Clip)

 

Confused about EMRs, EHRs, PHRs, HIE, HIO, RHIO, HL7, IDC-10, LOINC, ONC, and on and on with the alphabet soup of digital health? Here’s one great resource you’ll want to get familiar with.

The U.S. National Library of Medicine (NLM) is a major participant in the development and promotion of electronic health records (EHRs) and the home of the PubMed website, which provides free access to MEDLINE, “the NLM database of indexed citations and abstracts to medical, nursing, dental, veterinary, health care, and preclinical sciences journal articles”. Click here for more details on PubMed. The PubMed website offers a handy way to keep up-to-date on key government programs, citations to peer-reviewed journal articles, and other sources of information pertaining to EHRs and related aspects of health information technology by grouping key resources on one page—part of their “topic specific queries” service. The MEDLINE/PubMed Search & Electronic Health Record Information Resources website features a variety of useful features for sophisticated researchers and novices alike, including links to additional information resources from NLM, the U.S. Department of Health & Human Services (HHS) and other government agencies, associations and foundations, international organizations, and more.

One of the most helpful tools on the site is a link to a very convenient, pre-formulated search of journal literature indexed in PubMed as well as details on the (very comprehensive) search strategy. This feature can really save time when you just want a quick look at the latest articles (citations are listed chronologically; PubMed is updated five days per week).

Please be aware that, for the most part, this search will not bring you into the full-text articles. However, some citations will have links to the publisher’s website where you can either purchase the article in full-text or, in some cases, retrieve the article for free. (PubMed’s electronic health record search results page indicates that 4,994 free, full-text articles related to the EHR search are available in PubMed Central.) If the citation does not have a link to a full-text source, you can save the citation and retrieve the article from a medical library.

PubMed offers a variety of ways to narrow a search, including searching only for free full-text, full text available, abstract included, or by other criteria. Refining a PubMed search is something you’ll want to learn how to do given the volume of articles. As I said, the search strategy is very comprehensive and really covers a range of health IT issues, not just EHRs in the strictest sense. Included in this concept is health information exchange (HIE), personal health records (PHRs), and numerous other areas. For example, the electronic health record pre-formulated search brings up a total of 37,388 citations, beginning with the first article from 1957 (something about “health cards, in Portuguese…) to the most recent article added as of today (January 29, 2013) on enhancing patient safety with EHR usability. (BTW, this looks like a great article! Patient safety is one of the key issues I’m tracking this year. Here’s the cite and link - Middleton B, Bloomrosen M, Dente MA, et al. Enhancing patient safety and quality of care by improving the usability of electronic health record systems: recommendations from AMIA. J Am Med Inform Assoc. 2013 Jan 25. [Epub ahead of print]).

Another really great feature of this pre-formulated search is a bar chart showing results by year. This provides a quick look at how the topic is tracking in terms of numbers of articles published in the peer-reviewed literature. Looking at this graphic, it is immediately apparent to see the dramatic uptick in health IT articles over the years. Just for fun, I ran some numbers to see look at the increase in articles over a few ten-year periods. In 1980, there were 87 articles based on the search strategy, which increased to 621 articles in 1990, amounting to a compound annual growth rate of 21.7 percent. This seems logical as this is really the period when PC’s became ubiquitous throughout industry. From 1990 to 2000, when there were 1,114 articles, the annual growth rate declined (or stabilized) to 6.3 percent. Looking at the period of 2002 to 2012, we can see that the annual growth rate in the number of articles has increased a bit, but not much, to 7 percent (see chart). Not surprisingly, the period from 2009 to 2010 saw a 16.7 percent increase in articles, undoubtedly influenced by HITECH.

Anyway, the main point is, NLM’s PubMed is a great resource to keep up with studies on health IT. Even though much of the literature is targeted to a “professional” audience, business researchers should be aware of the value of medical literature as a an important tool for tracking industry trends. While a PubMed search will not link to citations of proprietary market research studies that provide in-depth market and business analysis like we do at Frost & Sullivan, a review of the clinical medical literature is a key component of any thorough market analysis pertaining to the healthcare industry.

Findings from a recent study by the Pew Research Center reveal that thirty five percent of U.S. adults have gone online within the past twelve months to diagnose a medical condition that they, or someone else, might have.

Source: Susannah Fox and Maeve Duggan. Health Online 2013, Pew Internet & American Life Project, January 15, 2013. 

The study is the latest health-related survey conducted as part of Pew’s Internet & American Life Project that began in 2000 with the objective of measuring the social impact of the internet across the U.S. population. Health Online 2013 contains responses from 3,014 U.S. adults obtained from telephone interviews conducted from August 7 to September 6, 2012. In addition to an analysis of how people use the internet for medical diagnosis, the report covers a range of issues around general health information seeking behavior including a look at the most common health-related topics searched for online. Survey data are segmented by respondents’ gender, age, income, educational level, and insurance status. The report also looks at the use of smartphones in searching health information as well as peer-to-peer health information seeking behavior.

Select Findings

The study identifies two key categories of user types segmented from the 81 percent of the U.S. population that uses the internet—specifically, “online health seekers” and “online diagnosers”. Online health seekers are those that say they looked online for health information within the past year. This category consists of 72 percent of the total internet user population, with women, younger people, white adults, and those in higher income and education brackets dominating. Of this population, the vast majority, or 77 percent, began their search with a search engine such as Google, Bing, or Yahoo; 13 percent began with a health information specific website like WebMD; 2 percent began at a more general site like Wikipedia; and 1 percent began at a social network site like Facebook. Online diagnosers are a sub-segment (59 percent) of online health seekers and categorized as those that say they have gone online specifically to identify a medical condition they or someone else might have. This group constitutes 35 percent (one in three) of U.S. adults. Of this population, 53 percent say that they followed up with a clinician after their web search while 46 percent did not.

Additional findings of interest include -

• 41 percent of online diagnosers ultimately had their diagnosis confirmed by a physician
• 52 percent of smartphone owners have looked up health information on their phone, compared with just 6 percent of other cell phone owners
• 26 percent of online health seekers have been asked to pay for access to information while just 2 percent did so

The study authors conclude that, despite the relatively large number of people seeking health-related information online, most people are still dependent on their healthcare providers for direct, or offline, information. Specifically, the study finds that 70 percent of all U.S. adults sought information, care, or support from a doctor or other health care professional; 60 percent sought information or support from friends and family; and 24 percent sought information or support from peers (those with similar conditions).

Implications for Providers and IT Vendors

People are naturally curious about medical conditions and often seek to learn more via numerous on-and offline channels. Today, many Americans are taking a more proactive approach to managing their healthcare and seek to have a more informed interaction with their providers. Thus, it comes as no surprise that many people turn to the web, or “Dr. Google”, for health-related information. But what are some of the pros and cons of doing so? In terms of pros, the internet offers immediate, 24/7 access to information, especially when the web is accessed through a mobile device like a smartphone. As indicated in the Health Online 2013 report, most people start a health-related query at a search engine like Google as this is the most familiar and user-friendly option. Google allows one to “cast the net widely” in terms of the initial search strategy (which can be good and bad). The fact that large numbers of people use Google to look for health information or to diagnose symptoms is also beneficial for health researchers. Aggregated online search behavior is now being analyzed to track health trends across a defined population. The Google flu tracker has been in the news quite a bit lately and is a good example of this.

On the downside, there are many concerns about the trustworthiness, or authority, of medical information found on the open web in additional to potential problems with lack of information specificity, accuracy, and timeliness, all of which can result in potentially harmful misinformation. Most people deploy unsophisticated and very general online search strategies that can yield millions of results from millions of sources and, usually, only the top few results are selected for viewing. In addition, the quality of information found through search engines can vary significantly, which may lead a person to over- or underestimate the seriousness of the situation.

Healthcare providers are entering into a new era of outcomes-based reimbursement which will entail the need to maximize the quality of care to ensure the greatest safety and efficacy. As a result, providers will increasingly step up efforts around patient education. Many providers will employ online solutions like patient portals that will offer a way for people to easily seek out health related information in addition to performing other communication and administrative tasks with their providers. We foresee a great uptick in the adoption of patient portals during the coming years and firmly believe that this technology can go a long way in helping patients get access to information that can help them understand and better manage their health status. However, even if a provider offers a patient portal, it is still highly likely that many, if not most, people will continue to use the internet to access health-related information. Therefore, it is important that providers have a strategy to educate patients about the smartest way to use the open web when seeking health information and to encourage them to reach out to qualified health professionals when they have questions about the information they find on via Google, Facebook, or even through peer-reviewed medical literature found through WebMD or Medline. Health IT vendors must also keep close tabs on how online searching behavior is evolving among various population segments and use that information to develop products with user-friendly search capabilities that closely mimic the Google experience albeit it with more targeted and robust search results.

Providers should take comfort in the fact that the Pew research confirms that they are still the central source for health information for most people. Also, the fact that people are becoming more comfortable with searching online for information, as opposed to in person or via a phone call, is also encouraging for providers who are thinking about deploying a patient portal.

The November 2012 issue of Health Affairs takes a look at the rapidly emerging market for Accountable Care Organizations (ACOs). Among several articles about ACO’s in this month’s issue is an informative piece by Harris Meyer that provides a good overview of where things towards the end of 2012. Meyer, H. Many Accountable Care Organizations Are Now Up and Running, If Not Off to the Races. Health Affairs, 31, no. 11 (2012): 2363-2367. Available at http://content.healthaffairs.org/content/31/11/2363.full.html

ACO Demographics

The article points to research from Leavitt Partners indicating that, as of early October 2012, a total of 318 public and private ACOs were in existence in 48 states, with another 26 ACOs in the planning stages. Out of the total 318 ACOs, 161 work with private payers, 126 with public payers, and 31 with both private and public payers. The majority of the ACOs are sponsored by hospital systems and independent practice associations, while others are sponsored by commercial payers or nonprofit community organizations. The article mentions that, even though hospitals have taken the lead in ACOs up ot this point, there is a growing trend for more physician groups to get involved in ACO formation. At this time, most of the ACOs are based in larger metropolitan areas, particularly in Southern California and Boston. Other states and cities picking up in ACO formation include Minneapolis, Detroit, and central Ohio. In addition, Medicaid ACOs are starting or are planned in Massachusetts, New Jersey, Arkansas, Utah, Colorado, and Oregon. The article mentions the experiences of several public and private ACOs across the country including North Texas Specialty Physicians and Texas Health Resources, Optimus Health Partners in north central New Jersey, Advocate Health Care in Illinois, Dignity Health in California (formerly Catholic Health West), and University Hospitals in Cleveland.

The Purpose of ACOs

ACO’s are primary care focused entities designed to improve the quality and efficiency of patient care by enabling better coordination of care among a range or providers and settings. They are designed to operate with a global budget that will be used to care for a defined patient population. There is a considerable financial risk component to the ACO model. Specifically, if ACOs are able to meet or exceed designated performance standards, they will share cost savings. However, ACOs may also lose money if performance standards are not achieved. Even though many ACOs in existence today do utilize a fee-for-service model, it is hoped, although not proven by any means, that ACO’s can ultimately help to “bend the cost curve” by shifting providers from volume-based fee-for service reimbursement to performance-based global payments per members.

As Meyer points out in the Health Affairs article, it’s too early to tell whether public and private ACOs can accomplish their goals around reducing costs and improving quality. The provision of healthcare services in the U.S. is complex, multi-faceted and notoriously difficult to coordinate across an extremely fragmented delivery system. Furthermore, ACO’s depend heavily on primary care providers who are in increasingly short supply. Another concern is that implementation costs for ACOs, including administrative infrastructure and health IT systems, could be so high as to cancel out any potential savings resulting from better care coordination. Finally, many ACO’s should expect to confront challenges in branding and building awareness of the concept of accountable care among key stakeholders including physicians and patients. Nascent ACOs must have strategies in place to explain why these new organizations could be of value to them and to encourage them to consent to sharing their health data across the ACO so that it can be leveraged to improve quality and efficiency.

Overcoming Initial Skepticism

When CMS released the initial ACO regulations on March 31, 2011, there was a great deal of skepticism among many analysts—including yours truly—about the feasibility of the market taking to what was seen as a significantly complex and rather risky new model of care. However, the initial rules were subsequently revised and relaxed a bit so that, as is now increasingly apparent, more participants have been encouraged to take the plunge. This is the case for ACOs catering to public payers (that is, Medicare and Medicaid), and private commercial insurers like Aetna, UnitedHealth, and others. In fact, our recent discussions with industry thought leaders indicate that 60 to 80 percent of the commerical payer market is currently moving in the direction of ACOs. So, no doubt about it--the ACO movement is gathering steam. Whether or not they will ultimately be successful is another issue.

What's Driving the ACO Movement?

If we take a closer look at what is driving the ACO movement, we can point to three key issues—1) the impact of healthcare reform; 2) growing concerns about excessive costs; and 3) market consolidation. Clearly, the fact that we now have more certainty about the fate of the Affordable Care Act (ACA) is a major driver for ACOs. The re-election of President Barack Obama pretty much removes the majority of lingering doubts about ACA, ensuring that focus will now shift away from debating its legitimacy to implementing its key provisions. As reality sinks in, the need to transform patient care becomes more clear and that means ACOs will continue to grow and will, in fact, accelerate quite rapidly. Complaints about the excessive costs of healthcare are nothing new. However, there is growing consensus that fee-for-service simply does not encourage clinicians to practice cost-effective medicine. Most industry thought leaders believe that the U.S. healthcare system is irrevocably moving away from fee for service. The key focus now is on controlling costs and preparing for shifts in payment models. As the healthcare market rationalizes in response to market pressures, horizontal consolidation and vertical integration will continue to drive the development of ACOs. Hospitals will continue to merge and physicians, who have been slower to form ACOs than hospitals, are increasingly recognizing the need to form strategic partnerships with hospitals and/or be owned by them outright.

Where Things are Headed

The move to ACO’s will result in integrated, coordinated entities that depend upon data analytics and metrics to ensure the quality of care and contain costs. Such entities must be enabled by a robust IT infrastructure. It is inevitable that ACO’s will need to extensively leverage health IT to effectively carry out their mission. The core IT infrastructure for ACOs includes EHRs, HIEs, business intelligence and predictive analytics, clinical decision support, and patient portals including PHRs. None of this comes cheap. Cost estimates for building the IT infrastructure for ACOs range from $1 million to $4 million and up, depending on the number of providers involved in the ACO.

No one really knows if ACOs will fully deliver on their promise to improve care and control costs. What we do know is that the experiment is well underway and there will likely be many bumps in the road. Expect to see an increasingly elastic definition the concept of an ACO and adjustments in how these organizations are formed and operate to transform healthcare. The move away from fee-for-service and towards integrated, accountable, value-based care requires extensive capabilities in health IT.

We expect the ACO movement to be a key market driver for health IT purchasing over the next 12 to 24 months.

The Seventh Annual National Health IT Week, sponsored by the Health Information Management Systems Society (HIMSS), the Institute for e-Health Policy, and the College of Healthcare Information Management Executives (CHIME), took place during the week of September 10, 2012. National Health IT Week features a variety of live and online events hosted by numerous partners and sponsors including nonprofit associations, academia, industry, and government agencies, all designed to raise awareness of the importance of health information technology to enabling health system transformation. As part of their participation in this event, the U.S. Department of Health and Human Services (HHS) in conjunction with the Office of the National Coordinator for Health Information Technology (ONC), held its second annual consumer health IT summit in Washington on September 10. The Summit brought together a variety of constituents across public and private sectors focused on efforts that encourage the use of health IT among consumers and patients. A video from the conference posted on YouTube presents a conversation between Dr. Farzad Mostashari, National Coordinator for Health IT, ONC, and Lygeia Ricciardi, Acting Director, Office of Consumer eHealth, Office of the National Coordinator for Health Information Technology, HHS in which they discuss ONC’s comprehensive strategy for driving consumer engagement.  In the video, Dr. Mostashari and Ms. Ricciardi outline three core elements seen as essential to moving the needle forward: 1) Access, which means getting information into the hands of patients and caregivers; 2) Action, which pertains to engaging consumers to use information to improve health; and 3) Attitudes, which is about how increased access and action enable new attitudes about the traditional roles of patients and providers. Key announcements from the Summit that further depict ONC’s efforts on this three-point strategy for consumer engagement include:

• Push to Leverage Blue Button-Type Functionality: “Blue Button” refers to a VA-led initiative launched in 2010 that allows veterans to download their personal medical information by clicking a blue button on a secure website. The Blue Button approach is a simple and straightforward way for patients to gain access their health data. The program is very popular and more than half a million veterans have already downloaded their records. ONC is strongly encouraging technology vendors and providers to extend this concept to the broader patient population. Dr. Mostashari emphasized that these stakeholders must focus on the “view, download, and transmit process” via blue-button type technology as a key way to drive consumer engagement. ONC has also established a Twitter hashtag of #VDTnow to encourage people to post about their efforts in this area.
  
  
• Stage 2 Meaningful Use Raises the Bar on Patient Access: The recently released rules for Stage 2 calls for hospitals and physicians to confirm that 5 percent of patients access their medical information online. ONC designed this requirement to help motivate patients and providers to get more involved in their own care. The 5 percent requirement in the final rules is a compromise from the proposed rules which called for confirming that 10 percent of patients access information online—a requirement that was widely contested by providers. ONC believes that the lesser requirement should, nonetheless, still be quite helpful in encouraging their goals for patient engagement via health IT.
  
  
• Two New Workgroups Formed to Assist Policy-Making: ONC announced plans to add two new workgroups to its advisory Health IT Policy and Standards committees that will focus exclusively on patient engagement. Members of the public will be able to nominate committee members to serve on those committees
  
  
• Results of PHR Video Challenge: This past July, ONC launched a video challenge to promote PHR use. The "What's in Your Health Record??" invited people to create a brief video depicting ways in which they are getting access to their personal health information. The contested was intended to inform the public of their legal right to access their health records and to illustrate the importance of how being informed and involved leads to better care.  Six awards totaling to $7,700 were presented at the Summit.

Patient-Centric Care Means Patients Need to Be in the Information Loop

We hear a lot about how health IT can enable “patient-centric” health care. The patient-centric concept can mean a variety of things. From a provider’s perspective, it has mostly pertained to using technology that integrates disparate sources of information so that there is a “single source of truth” offering a complete, comprehensive view of a patient’s history and status. Access to this information is also important for patients and their family members. Thus, a truly patient-centric health care system must include patients in the information loop, and that means using information technology. Acknowledgement of the need to engage consumers and patients with health IT is not new but efforts are accelerating and taking on more urgency. As with provider health IT, ONC, providers, and technology vendors are emphasizing potential improvements in the quality of care and as well as patients’ rights to their own data as the reasons for their interest. However, another very important driver of this movement to consider is the shift to accountable care and bundled payments. In a health care system where reimbursement will increasingly be based on the concept of value (defined as the overall quality of care in terms of process and outcomes that is derived from total resources expended), the issue of patient compliance takes on a particularly critical role. Problems around patient compliance have long been seen as a critical factor influencing outcomes. The physician and care team can do everything right but if the patient is non-compliant with treatment protocols, outcomes are often negatively impacted. This is one of the core dilemmas in health care and it grows in importance with value-based reimbursement. Thus, in an era of reform and transformation, there is no getting around the fact that people must take on more responsibility for their own health care. Patients need to be accountable too. For payers and providers, this comes down to changing human behavior, a difficult-- but not impossible—challenge. That means efforts will accelerate to help develop informed and engaged consumers of health services. Those efforts will include shared decision-making, actively tracking and monitoring compliance with treatment protocols, and having ready access to their personal health data and various educational tools. A variety of approaches and technology tools are needed to enable patient engagement including PHRs, patient portals, mobile apps, telehealth solutions, and remote patient monitoring. Not all patients will be able to participate equally in health IT—and many never will do so, realistically. However, as more innovative and user-friendly technology tools like Blue Button features become more widespread, cultural attitudes about health IT will inevitably change among larger numbers of patients as they have among health care providers. The VA experience is proof of this concept. Using health IT tools will become more comfortable and natural for people and will ultimately pervade every aspect of their health care experience, from the initial point of engagement with payers and providers on through active treatment, post-treatment, and ongoing monitoring and maintenance.

Pay Attention to the Voice of the Patient

The need to engage patients and consumers is greater now than ever as witnessed by accelerated activity among numerous public and private entities. Patient behavioral change is a key component of health system transformation and the “voice of the patient” must be a key focus for all market participants. A comprehensive, concerted effort among all stakeholders is necessary to ensure success.

Health IT Needed to Transform Patient Care

The provision of health services is an exceptionally data-intensive endeavor. Of course, other industries are also very data-intensive but the health care industry has notably lagged in making use of advanced information technology (IT) solutions to manage and process vast troves of data. Health care data includes clinical medical information collected at the point of care, financial information resulting from highly complex billing and claims processing, and voluminous administrative and demographic data required as a result of significant legal and compliance requirements--all of which provides a rich resource for gaining knowledge and insight into best practices. Unfortunately, in health care, disjointed data is collected across highly fragmented systems that are still often predominately paper-based or, if electronically-based, are not usually amenable to interoperability with electronic systems used by various payers, providers, or government agencies. The whole thing is mess and everyone knows it but the good news is that this situation is rapidly changing today with the new emphasis on all things health IT, particularly advanced EHRs and new methods of health information exchange. Over the past decade, especially during the last five years, health care providers, including hospitals, have considerably accelerated their use of clinical IT systems such as EHRs. Thanks in no small part to the strong push from the federal government in the form of financial incentives provided by the HITECH Act, hospitals are focused on installing new EHR systems and digitizing clinical information that has traditionally been locked in paper-based silos. The growing adoption of health IT is key to the government's goals to transform our health care system, as laid out in the ONC's Federal Health IT Strategic Plan for 2011-2015 and summarized in the following chart -

 Growing EHR Adoption Drives Analytics Evolution to Next Phase

The growing use of EHRs is a very positive development on the road to health system transformation. In the next phase, newly digitized clinical data will be combined with financial and administrative data to yield new insights that will improve the quality, efficiency, and safety of patient care. Over the past 20 years or so, hospitals have steadily increased their knowledge and capabilities around digitally gathering and analyzing financial and administrative information. Thus, the digitization of financial and administrative data is further along in the hospital setting than is clinical data. Furthermore, the use of business analytics or business intelligence has been in place in most hospitals to some degree. Unfortunately, most hospitals have yet to adopt sophisticated analytic approaches to the data generated from their new EHR systems, and they particularly have not yet integrated clinical data with financial and administrative data.

Installing EHRs so that clinical data can be digitized and shared is the first step towards transformed health care. As EHR adoption grows, hospitals will need to aggressively move towards new processes and strategies to leverage clinical, financial, and administrative health data for the benefit of individual patients, patient populations, and the nation as a whole. Health care reform, the move to accountable care, and the prospect of bundled payments, or value-based reimbursement, are key drivers for the need to derive advanced insights from all forms of digital health data. Gaining value and insight from health data requires advanced, cloud-based data analytics solutions that pulls in data from all sources to provide both real-time and predictive insights, unlike the traditional retrospective, business intelligence approach of the past that mostly focused on financial analysis. Health data analytics is really a whole new approach to the analytics process that will impact every aspect of hospital operations.

It is clear that the future of health care will be increasingly driven by advanced health data analytics utilized at every point of care. We believe that the urgent need to transform our health care system will require hospitals to increasingly invest in advanced data analytics solutions to monitor end-to-end care delivery across a variety of settings as well as to provide comprehensive reporting on performance and quality measures to a variety of stakeholders. Understanding the key imperatives driving this phenomenon is essential. We take an in depth look at this issue in our new report, U.S. Hospital Health Data Analytics Market, 2011-2016: Growing EHR Adoption Fuels A New Era in Analytics, part of Frost & Sullivan’s Healthcare & Life Sciences IT Growth Partnership Service program.

Summary of Supreme Court Ruling

On June 28, 2012, the United States Supreme Court, in a 5-4 decision, found that the Patient Protection and Affordable Care Act’s individual mandate is a tax and thus allowable under Congress’ constitutional power to levy taxes. Under the law, most people, save those who quality for exceptions based on financial or religious considerations, are required to purchase health insurance or be subject to a penalty payable to the IRS amounting to 1 percent of their income starting in 2014. The penalty will increase with time. The Supreme Court’s decision leaves the majority of the law in place, with the exception of the Medicaid funding formula. Specifically, the majority of the court agreed that the law's expansion of Medicaid to an estimated 16 million people by 2019 is unconstitutional as written and that the federal government cannot threaten to withdraw existing Medicaid funds from states if they choose not to expand Medicaid. It is expected that this aspect of the ruling will impact the extent to which some states participant in the Medicaid expansion called for under the law, at least initially. While the ruling is seen as a win for the Obama administration, the next hurdle facing the Affordable Act (ACA) will be the November Presidential elections, as the Republicans have vowed to repeal the law if they win the White House. Even in the event that the Democrats retain the Presidency, it is highly likely that certain provisions of ACA will likely be repealed and/or revised in the coming years, e.g., the controversial tax on medical device manufacturers.

Market Impact

Overall, we see the Supreme Court ruling on ACA as a very strong positive for heath IT. Despite the prospect of a Republican win in November, most industry experts believe that there is more clarity now about how health system transformation is shaping up--and the headwinds are strongly in favor of an even more aggressive adoption of EHRs and related technologies. Clearly, this trend has been accelerating for the past several years, due in no small part to The Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009. But beyond that, we see that the culture and attitudues around health IT are changing as well. We firmly believe that the ACA ruling will result in an even more widespread acceptance of the inevitable changes that will reshape the financing and delivery of health care in the United States. Specifically, the health care system will be increasingly characteristed by a greater volume of patients, many of whom are new to the system; a greater number financially disadvantaged patients coming into the system; and, most importantly, more patients with complex, chronic illnesses, often exacerbated by years of no access or poor access to health care services. This situation requires that providers gain every advantage in terms of facilitating access to care for more patients while simultaneously driving comprehensive improvements in quality, safety, and cost-efficiency. Such improvements simply cannot happen without the greater use of health IT. As providers come to grips with the new reality, those health IT stragglers, namely small physician practices and some small hospitals, will increasingly come on board out of sheer necessity. Many of these providers will be required to merge with larger practices, join an ACO, or get bought out by a hospital/IDN.

Below is a summary of some potential near-term and long-term impacts of the ACA ruling on key health care market participants:

Providers

With regard to EHRs, the ruling will probably not have much of an impact for large hospitals and academic medical centers as they have been strongly focused on EHRs anyway due to HITECH. Projects are well underway; contracts have been signed. Large vendors with fully integrated systems for hospitals and ambulatory practices have been winning big and this will continue and accelerate. Growing consolidation presents operational challenges for health IT implementation, especially when providers are on separate EHRs. This could slow the path to Meaningful Use (MU) for some providers. As a result, there may be some push back on MU measures and timelines due to growing consolidation as well as the need to ramp up other IT systems in preparation for 2014, particulary financial systems for revenue cycle management (RCM). We see a big opportunity for hospital RCM. Hospitals need to quickly get very smart about managing financial risk and reducing bad debt. The onslaught of newly insured patients coming into the system will require robust RCM capabilities including patient engagment at the pre-certifcation stage. While the fact that patients will be insured is good, hospitals will need to be very efficient about collecting co-pays and deductibles because nothing can be left on the table due to Medicare cuts and the growing numbers of Medicaid patients.

Vendors

There will be vendor displacement because of consolidation for all sectors of the market; large hospitals to some degree, but especially for mid-sized and smaller hospitals. Smaller hospitals (under 150 beds or so) are most likely to get absorbed into larger systems. Financial imperatives will be overwhelming for many and vendors serving that market are likey at increased risk. In addition, some large legacy vendors, especially those with weakness on the ambulatory side, will continue to get displaced. Hardest hit vendors will likely be those serving the small ambulatory medical practices. These practices will increasingly need to partner with a larger provider and will eventually go onto the larger system’s EHR. The next six months are very risky for vendors serving this market as some providers delay upgrade/purchasing decisions waiting for outcome of elections and/or seek to partner or get bought out. Add that to the need to spend more money for Stage 2 MU certification and these vendors face very difficult market conditions that will undoubedtly cause many to go under. Looking out over the longer term, the distinction between ambulatory and hospital EHRs will largely disappear over the next decade. We will likely see a move to open, cloud-based platforms that are interchangeable among all providers and care settings. Provides will select applications and modules that are relevant to their practice, e.g., EHRs, patient portals, PHRs, etc. However, user interfaces/usability may be more standardized due to regulatory oversight due to patient safety concerns.

Payers

The short term impact will likely be somewhat negative for payers but they have been expecting this so and much of the downside has already been accounted for in their business plans. Long term, we believe ACA is a strong positive for the insurance industry. We will likely see an acceleration in payers interested acquiring health IT companies as they need to have more access to quality data and provider performance metrics. As for state health insurance exchanges, we do expect some uptick in activity to form exchanges over the next several months; however, some states will be waiting until 2013 (after the elections) to move fully forward on this. The issue of health insurance exchange is a very political issue in many states. Thus, the process will likely be contentious and characterized by fits and starts as the market settles, much like what has taken place over the past several years with public health information exchange organizations.

The New York Times recently reported news of a proposed merger between two of New York City’s largest hospital systems—New York University’s Langone Medical Center, which has 1,069 beds, and Continuum Health Partners, which includes Beth Israel and two campuses of St. Luke’s-Roosevelt and has a total of 2,180 beds. (New York Hospitals Look to Combine, Forming a Giant. A. Hartocollis, New York Times, June 6, 2012) Although not a done deal by a long shot—the hospitals must first receive federal and state regulatory approval—the proposed merger has garned a great deal of attention as it would create one of the largest health systems in New York City. Large health system deals like the prosed marriage between NYU Langone and Continuum as well as numerous others that have recently taken place across the U.S. have the power to significantly influence the market for health services. Thus, these deals are attracting increased scrutiny from the media, the public, and, of course, regulatory authorities.

Why Hospitals are Merging Now

There are numerous reasons why these deals are accelerating at this time. Like most mergers, the ultimate goal is to gain competitive advantage and increase market share among a dynamic and rapidly change marketplace. However, health care providers are usually reluctant to directly speak to such blatant business motives and generally prefer to play up the “integration drives quality” angle of these deals, which is certainly not untrue and must be considered in today’s environment where federal health reform law encourages greater integration and coordination. Yet, it is important to note that some studies by health economists show that hospital mergers actually have no effect on the quality of care, but do have a significant effect on the price that hospitals charge. According to a recent article by Avik Roy in Forbes (Goal of the NYU-Continuum Hospital Mega-Merger: Raising Prices), despite the fact that hospitals often claim that the reason for mergers is to improve care quality and integration while simultaneously reducing costs by creating economies of scale, the real driver behind most mergers is to force insurers and patients to accept higher prices. The potential for higher prices due to fewer market choices isn’t the only issue causing angst. Mergers in any industry are often accompanied by considerable disruption including staff layoffs, management and governance restructuring, and even changes in the organization’s basic mission and purpose. In the case of health care providers, proposed changes in womens’ health, reproductive services, and end of life care when religious-run health care systems acquire or form joint ventures with non-secular hospitals and health systems have resulted in public protests in several U.S. communities and have also given rise to public advocacy organizations like the New York-based MergerWatch, whose motto is “protecting patients when hospitals merge”.

Mergers Drawing Increasing Scrutiny

The health system consolidation trend has come come under scrutiny from the Federal Trade Commission (FTC), an independent agency of the U.S. government tasked with monitoring anti-competitive business practices that could potentially lead to monoplies. The FTC has recently taken a renewed interest in hospital consolidation and has ramped up efforts to look into how these deals might potentially lead to higher prices for patients and payers. The American Hospital Association (AHA), however, took a stand against the FTC in a recent letter to a House Judiciary subcommittee hearing on hospital consolidation. In essence, the AHA letter claimed that consolidation is the preferred method to build a necessary continuum of care and that anti-trust laws are outdated when applied to the reality of today’s health care market.

Potential Market Impact

Health system change and ongoing financial pressures are resulting in an increase in consolidation across the provider landscape. While we’ve seen this sort of merger mania among providers take place before—namely, around a decade ago at the height of the managed care trend--this time it’s different and we believe that provider consolidation is a signficant megatrend that will ultimately reshape the entire market landscape. According to Irving Levin Associates, there were a total of 86 hospital merger and acquisition deals in 2011, representing a 14.6 percent increase over the 75 deals that took place in 2010. In terms of total deal value, an article in HealthLeaders Media (Hospital M&As Continue Apace in 2011) puts the number at $7.3 billion, out of $236 billion of total health care-related M&A activity in 2011. There has been no sign of a let up in deal activity this year with a total of 23 deals reported in Q1 2012, an increase of 5 percent over Q1 2011, according to Irving Levin Associates. Thus, we think it is safe to presume that, whatever happens with the Supreme Court in June, the next two to three years willl be significant in terms of provider deal activity as hospitals and physicians brace for inevitable market transformation and increased cost pressures. In today’s “merge or die” environment, struggling non-profit and small hospitals and many physician practices, particularly small practices consisting of solo/partner and groups of five and under, are becoming more amenable to sacrificing their independence in order to come under the umbrella of a larger organization. Larger hospitals and medical groups generally have more robust capabilities with regard to overall clinical and financial operations, including financing options and capital spending, range of clinical services, IT infrastructure and facilities, staffing, and, especially, the purchase and management of advanced technology including health information technology (IT) systems.

How Mergers Affect Health IT Implementation

With regard to health IT, there are pros and cons to provider consolidation. In terms of the cons, the merges are coming on at a time of unprecedented pressures. Due to health IT requirements stipulated by MU as well as the prospect of the Patient Protection and Affordable Care Act (PPACA), both of which result in numerous complex IT projects with tight timeframes, most hospitals are well underway with IT projects regardless of whether a merger is in their future or not. Thus, hospital IT staff are completely tapped out trying to get their electronic health record (EHR) systems up and running to meeting Meaningful Use (MU) requirements. In order to quality for MU, some hospitals are doing system upgrades including installation of new applications and others are facing complete rip and replace including substantial IT infrastructure overhaul. At the same time, hospital CFOs, administrators, and HIM staff are struggling with ICD-10 implementation and changes in revenue cycle due to the prospect of value-based purchasing and bundled payments with widespread implications for IT applications and workflow processes. Add mergers to the mix and you have a situation that can substantially complicate the transition to EHRs and new RCM systems when two or more organizations with different vendors, IT infrastructures, cultures, workflows, and so on, come together in a merger. Hospital mergers seeking to create true integration and cost efficiencies often seek a single-vendor strategy, thus complicating IT system implementations and even potentially disrupting EHR upgrades and or even new installations resulting in wasted time and efforts. On the plus side, as previously stated, for some hospitals, the prospect of more resources to help rationalize and drive all of the various IT initiatives is a signficant benefit. This is particularly the case with small community non-profits and rural hospitals.

Disruptive market forces guarantee a bumpy ride for health care providers and the vendors who serve them. We believe that it is unlikely that the FTC and/or other disgruntled stakeholders will be successfully in significantly stemming the tide of hospital mergers. Ownership changes are inevitable and will result in considerable healht IT vendor displacement in the next few years.

The CMS EHR Incentive Programs

The adoption of health information technology like electronic health records (EHRs) and health information exchange (HIE) has been a top priority of the United States federal government since the administration of George W. Bush. The Obama administration has accelerated the push towards health IT with approximately $30 billion in incentive payments earmarked for various initiatives as part of two key pieces of legislation - the American Recovery and Reinvestment Act of 2009 (ARRA) and the Patient Protection and Affordable Care Act (PPACA) of 2010. The CMS EHR Incentive Programs, part of AARA, will provide incentive payments to eligible professionals, eligible hospitals and critical access hospitals (CAHs) as they adopt, implement, upgrade or demonstrate “meaningful use” (MU) of certified EHR technology. Eligible professionals can receive up to $44,000 over five years under the Medicare EHR Incentive Program. Incentive payments for eligible hospitals and CAHs may begin as early as 2011 and are based on a number of factors, beginning with a $2 million base payment.

share this clip)

Tracking the Progress of Health IT Adoption

Given the potential for health IT to significantly improve some of the most glaring inefficiencies and quality concerns that plague the health system today, health policy analysts are keeping a close watch on how providers are progressing in the move to digital technologies. In addition, the large amount of tax-payer funds involved with health IT drives the need to collect robust metrics and pinpoint potential areas of concern. The nonprofit Robert Wood Johnson Foundation (RWJF), which is the largest philanthropy in the nation devoted exclusively to public health issues, works with the Office of the National Coordinator for Health Information Technology (ONC) to report on various health IT issues, including tracking progress toward the universal adoption of EHRs. A series of reports have been issued by RWJF since 2006 and ONC will use a portion of this year’s study (Health Information Technology in the United States: Driving Toward Delivery System Change, 2012) to report to Congress on the status of health adoption. The newest report expands on previous analysis on health IT trends by investigating providers’ (hospitals and physicians) readiness to meet the requirements of the CMS EHR Incentive Program and also explores the role of health IT in other health care reform initiatives. Included in the report is a look at EHR adoption data from surveys of U.S. hospitals and office-based physicians; recent data on the progress and challenges of HIE at both the state and federal levels; the importance of health IT to health reform initiatives including patient-centered medical homes and accountable care organizations; and several other issues relevant to health IT.

Adoption Trends as Reported by RWJF

The authors found steady increases in the level of EHR adoption for physicians and hospitals throughout the United States. For physicians in ambulatory practice, the authors report on data collected by the CDC's National Center for Health Statistics (NCHS) as part of its National Ambulatory Medicare care Survey (NAMCS): Electronic Medical Records Supplement (funded by ONC). The most recent survey was sent to 10,301 physicians in 2011 and had a response rate of 64 percent. The NAMCS surveys show that the proportion of physicians reporting the use of any EHR (defined as either all electronic or part paper/part electronic) increased from 17.0 percent in 2002 to 57.0 percent in 2011 while the proportion of physicians with at least a basic system rose from 12.0 percent in 2007 to 34.0 percent in 2007. In terms of the rate of EHR adoption relative to physician characteristics, the data showed primary care physicians are increasing EHR adoption at a faster rate than specialists and that physicians in practices with more than two physicians and those in the Northeast are adopting at a faster rate than others. As for intentions to qualify for EHR incentive funds (either Medicare or Medicare), data from the NACMS showed that 51.3 percent of physicians reported that they intended to apply. However, only 10.5 percent of those intending to apply actually have an EHR system with the appropriate functionality to meet MU requirements as stipulated by the EHR Incentive Program. The data also showed that those physicians working in physician-owned practices were significantly more likely to apply for EHR incentive funds. As for hospitals, the authors report on data collected by the American Hospital Association (AHA) Health Information Technology Supplement (also funded by ONC). The AHA survey of health IT adoption is sent as a supplement to AHA's Annual Survey. Data for the 2011 survey was collected from October through December 2011 from 2,646 hospitals, approximately 50 percent of all acute care hospitals in the United States. For this survey, EHRs are characterized as basic or comprehensive depending on various functions and extent of use. The AHA survey found that hospitals’ use of basic EHRs rose from 11.5 percent in 2010 to 18.0 percent in 2010 and the use of comprehensive EHRs rose from 2.6 percent to 8.7 percent. Of concern, the authors report that the gap between the use of EHRs in larger, urban teaching hospitals and smaller, rural hospitals is growing. Data show that adoption among lager hospital increased by 17.3 percentage points compared to 10.1 percentage points among smaller hospitals. The authors also point out concerns around hospitals' ability to fully meet MU based on key functionalities required (e.g., drug-drug and drug-allergy checks, quality reporting and CPOE).

Progress is Impressive but Providers Need Hands On Assistance to Meet Meaningful Use

As the RWJF report clearly shows, the adoption of EHRs has been on an upward swing for some time but has significantly accelerated since the passing of AARA and PPACA. The latest data being reported from CMS (March 2012) shows that a total of 225,765 providers have registered for the CMS EHR incentive programs - 222,282 eligible professionals (physicians, nurse practitioners, dentists, etc) including 148,476 under the Medicare program and 73,806 under Medicaid, and 3,483 hospitals. Payments, which began in May 2011, have totaled approximately $2.4 billion. While things are certainly moving in the right direction, albeit somewhat slowly, data from the RWJF report and CMS verify some key trends and potential concerns around EHRs that we have been tracking for some time. First, many physicians and hospitals are moving to digital technologies because they simply must in most cases. This is due to a number of factors in addition to incentive funds including growing complexities in reimbursement from both government and commercial payers; the need to drive cost efficiencies and streamline operations; the proliferation and growing familiarity with information technology; an explosion of data and information due to technological and scientific advances; and, most imperative, the need to improve the quality and safety of patient care. However, the adoption of EHR technology does not automatically translate into MU - that is, meeting the government’s core objectives around specific functions designed to improve patient care. This is due to technical issues around EHRs (i.e., some providers have EHRs that are not equipped with core MU functions like clinical decision support, etc) as well as logistical issues that providers face in actually adapting to workflow changes, some of which are quite daunting.

Technology Vendors Must Be Highly Proactive in Helping Clients Achieve Meaningful Use

As we are seeing more and more, getting to MU, and ultimately sustaining the process, is complex and multi-dimensional entailing significant changes in technology use, workflow, communication, and culture on both organizational and personal levels. MU is a living, breathing entity that must be continuously nurtured as the government adopts ever more stringent requirements to qualify for incentive funds. The drumbeat round MU complexities is growing louder, particularly since CMS released the proposed requirements for Stage 2, set to begin in 2014. While the government may continue to be flexible around timelines and some aspects of MU requirements, it is unlikely that requirements will significantly relax. What this means from a market perspective is that those vendors who have technologies and services that are particularly adept in helping clients meet and sustain MU will continue to gain. It will come as no surprise that the need is particularly acute for ambulatory providers and small hospitals. Vendors must be extremely proactive about understanding and meeting client challenges around MU, both technical and logistical. Selling the EHR technology is not enough – ongoing communication and support are critical for survival in this increasingly competitive market. Technology vendors must be willing invest time and resources in helping their clients succeed.