Market Overview

The healthcare information technology (HIT) software market is poised for dramatic growth. Drivers include built up demand for upgrades in legacy systems that have been neglected for years, government incentives for action in implementing an electronic medical record (EMR) system (and penalties for non action), gaps in addressing demand such as the need for small-scale systems to support physician practices of five or fewer doctors, and the ability to do what software does best – automate workflow and coordination of care through scheduling and asynchronous, parallel processing. In short, healthcare organizations will pull themselves forward in the capability maturity model for the hospital of the future by means of enhanced IT integration and functionality.

This research estimates the current market for hospital information systems (HISs) to be some $307 million and growing at a 20% rate, whereas the market for physician practice management is $102 million and growing at 25%. Combined, the two markets will reach $1.38 billion by 2014 and surpass $2 billion by 2015.

On the flip side, market risks and inhibitors are substantial. Open source looms as a major disruptor in the positive sense of driving innovation and reengineering rather than direct software revenues (since the software itself is “free”). The end result will benefit end user enterprises as they are able to acquire more technology for the dollar. Meanwhile, Congressional legislation is a blunt instrument and market uncertainty is being amplified by lack of clarity as to the rules of engagement. Yes, EMRs are being implemented, but interoperability, workable security and usability remain afterthoughts in too many cases. Attention to these by software providers, implementers and users alike is not gold plating and will be rewarded with the cost saving and productivity improvements that are the promise of HIT.

Drivers of Adoption

Drivers of adoption of healthcare information technology include:

• The growing realization that the current model of healthcare – turn the cranks ever faster on procedures, tests, and office visits – paraphrasing Michael Sachs – is at the end of its run. Improvements in productivity (and improved healthcare price/performance) will have to come from improved workflow, coordination of care, and evidence-based comparative effectiveness research, all of which require advances from today’s legacy hospital information technology (IT) systems.
  
  
• The stick of substantial payment penalties after 2015 for those providers that fail to use an EMR.
  
  
• The game is afoot – regardless of the outcome of legislation or the state of the overall economy – innovations, breakthroughs (and breakdowns) and the ceaseless experimentation with new possibilities, politics (in the positive sense of “workability”), and opportunities are being constellated and called forth by an entrepreneurial spirit that, in the short term, has nowhere else to play.
• Software is a part of every business process and every scalable delivery system. In that specific sense, healthcare is no different, though many details are and will remain distinct to the mission of improving human well being.
  
  
• A health information system software capability maturity model can provide insight, options and guidance as the process of reengineering unfolds. A usable HSCMM should place a premium on the interoperability and integration of such key functions as computerized physician order entry (CPOE), electronic medication administration and documentation (eMAD), clinical decision support (CDSS), pictures archiving and communication systems (PACS) for radiology and imaging, and related document management, billing, and comparative effectiveness research.

Inhibitors to Adoption

Inhibitors to adoption include:

• Complex security requirements – although paper records are inefficient, inaccurate and subject to walking out the door in someone’s briefcase, what cannot happen is that they are readily posted or copied on the Internet with the click of a button.
  
  
• High profile flap over large, multimillion dollar installations of ERP-scale hospital information systems that are over budget and behind schedule, reminiscent of some of the “train wreck” scale projects of the heyday of the ERP transformation.
  
  
• Hospital IT budgets feeling the squeeze of the recession economy – Medicaid (and Medicare) reimbursements hammered, insurance lapses for some 14K people a day as COBRA expires and benefits are cut, an ebbing tide lowers all boats.
  
  
• Variable skill in creating buy-in from physicians and staff, given inevitable learning curve and implementation hiccups. This is an inhibitor though ultimately it is an opportunity.

Hospital Information Systems Poised for Growth

The boundary of the market for end-to-end, run-your-hospital type software systems is determined by large vendors that offer an ERP (enterprise resource planning) size and scale suite of more-or-less integrated modules that extend from clinical systems through billing to ancillary services such as Lab, Rad, and Pharmacy. (See Figure 1: Healthcare Hospital Information Systems Software.)

Figure 1: Healthcare Hospital Information Systems Software

Physician Practice Management Software Poised for Consolidation

The market for physician practice software is distinct from that for running your hospital, though the two sometimes interact and include: Allscripts-Misys Healthcare Solutions Inc.’s All-Scripts Enterprise and PayerPath (the latter a web-based software as a service; Athena Health, Inc.’s web-based Athena Suite (Collector, Clinicals, Communicator); eClinicalWorks, Inc., as either an on site or an on demand (SaaS) solution; Emdeon Corporation, a proprietary system connecting payers, providers, vendors – not exactly SaaS, providing an information hub for connecting providers, payers, patients, requiring a sponsoring organization to up a network; and Quality Systems, Inc.’s NextGen Suite. The latter vendors represent some 80% of the market. However, this list is far from complete as this highly fragmented market includes over 325 small and medium-sized physician practice management software suites and solutions (see www.ehrscope.com/). As healthcare reengineering advances, it is likely this long tail of the market will undergo substantial consolidation.

Billing Systems

Healthcare creates complex billing situations where the patient is not the payer and providers may have to bill multiple payers over long cycle times. Unlike Medicare or the Veterans Administration where there is a single payer, most hospitals and physicians have to be able to collect from a variety of insurance companies, employers, patients, as well as a large regional payer. Service companies that provide revenue cycle management services for fractions of a cent on the dollar include: Accenture; Allscripts-Misys Healthcare Solutions, Inc.; Cerner; Emdeon Corp.; GE Healthcare; Ingenix, a division of United Healthcare, Inc.; McKesson Corp.; Medical Management Professionals, a division of CBIZ, Inc.; ProxyMed, Inc. (MedAvant Healthcare Solutions); Sage Software Healthcare, Inc.; Siemens Medical Solutions USA, Inc. and Quality Systems, Inc.; and regional billing companies. The market for healthcare transactions and collections would be greatly simplified by migration to a single payer model – a transformation that seems unlikely in the near term – but would not necessarily be eliminated, since the single payer (the federal government or a new agency thereof) would need help – lots of help – administering the program. However, short term disruption to the revenue model would be inevitable. If the market billed $100 billion and paid 1% to administer the transaction, that would still be a billion dollar market.

Consulting and Services

Professional services dedicated to implementing healthcare information systems, workflow reengineering, and strategic advice is available from a wide variety of boutiques, big four consultants, and HIS vendors. These include Booz-Allen, Cerner, Cap Gemini, Computer Sciences Corp. (CSC), Deloitte LLP, Ernst and Young, Hewlett Packard (HP), IBM Business Consulting Services (BCS), Perot Systems, and SG2. While billable hours have fallen less in healthcare than (for example) in finance, retail, real estate, and manufacturing, the impact has still been evident as hospital reimbursements have come under untimely pressure due to drops in Medicaid reimbursements and uncollectible debt as unemployed people lose their health insurance due to the expiration of Cobra. One bright spot – the public sector is a growth industry for revenue modeling and strategy services from such think tank type suppliers as HIMSS Analytics, The Lewin Group, and SG2.

Gaps in the Market Spell Opportunity – or Trouble

Estimates indicate that up to 80% of healthcare is delivered by physician practices that include one to five doctors. These small and individual practices are underserved by information technology. The “big guys” such as Cerner and Epic are not interested in a price point below ten million dollars. Even open source – e.g., Medsphere – has its sweet spot in the 370 bed community hospital setting. Not too small. Not too large. Yet still requiring a significant investment of implementation and workflow reengineering to get the benefit. This is not to say that an open source solution is impossible at the level of a three physician practice – just that the candidates have not differentiated themselves from the pack. In addition, requirements for regulatory certification raises the bar on cost and complexity, inviting the development of features and functions from the regulatory checklist, without necessarily addressing the cost or quality requirements and profile of the small practice. Interoperability remains the navel into the unknown with standards such as HL7 being significantly different between release 2.x and 3.0.

Software as a service (SaaS) has characteristics that are ready made for small physician practices such as low start-up costs, costs that scale along with the amount of work completed and limited or no requirement for IT expertise. However, physicians should be aware that there are trade-offs. In the long run, costs may be higher than owning and operating the system in house. What happens to the patient data if the doctor wishes to switch vendors? Thus, the recommendation to the physician is to spend time on the service level agreement (SLA) up front. Understand the limitations of such an arrangement and bargain aggressively for guarantees around data integrity, privacy, and access/availability on a 24x7 basis.

The U.S. Congress as software architect is a concept for which the world is not yet ready. For example, to help speed adoption, in April 2009, Sen. John D. Rockefeller (D., W.Va) introduced legislation calling for the government to create an open source electronic health-records solution, and offer it at little or no cost to safety-net hospitals and small rural providers. Whether this provision will become law is doubtful; however, its mere existence demonstrates a powerful market trend regardless of formal mandate. Shortly thereafter, so-called proprietary vendors such as McKesson and GE Healthcare subsequently began making statements that implied their own pricing was more flexible than previously had ever been imagined. Policy makers, regulators, and legislators are encouraged to make policy and not try to micromanage benefits. Given that Congress continues to outlaw data mining of anonymized Medicare data for comparative effectiveness research, this may be a pipe dream.

Recommendations

End user enterprises such as hospitals are advised to:

• Perform a readiness assessment that (1) situates the enterprise along a continuum of clinical and business (e.g., billing) capabilities, (2) provides a defined path for progress to the next level(s), and (3) enables an empowering conversation among the key roles as to responsibilities and contributions to the outcome.
  
  
• Position to take advantage of incentives (and to avoid penalties) by implementing a flexible working definition of meaningful use of HIT – granted that the terminology will continue to evolve.
  
  
• Understand that the critical path to success includes reengineering the workflow to accommodate the efficiencies of the software. The acquisition of a hospital information system is a significant commitment of resources. Do not pave the cow path, laying down automation over an obsolete legacy practice or procedure.

Vendors are advised to:

• Continue to listen to their clients and customers as if their lives depended on it; and renew the commitment to innovation through software automation, working smarter, interoperability, and extreme usability.
  
  
• Understand that clients initially purchase a system due its multiplicity of features and functions; but clients renew and upgrade thanks to the usability of a few core features and functions that make work easier and more productive. Proprietary is out; open is in.
  
  
• Embrace open source with the understanding that open source healthcare solutions themselves may benefit from disruption. It is true that Open VistA has been tried and tested in the refining fires of real world use at the Veterans Administration for thirty years; but it also implies that parts of it are thirty years old. Yes, dedicated (“green screen”) terminals have their uses and can be highly efficient (yes, Mumps is a highly efficient transactional btrieve file manager), yet such modern concepts as pay-for-performance, evidence based medicine, and comparative efficiency research raise the bar to the point where a relational database or even a column-oriented one is needed for the analytics. Tight coherence, loose coupling, usability and reusability, metadata and interoperability, remain key software design principles.

Policy makers are advised to:

• Understand that payers and providers are sometimes like dogs and cats – in which case Congressional policy making is the two-ton elephant.
  
  
• Proposals to turn the management of Medicare benefits over to a separately appointed and approved committee of regulators (with the possibility of Congressional oversight and override) such as the FDA seems the least bad alternative to micromanagement. A relatively stable and evolving set of policies is a preferred approach to software (and system) implementation.
  
  
• Healthcare information technology reengineering is distinct from health insurance reform. Both are needed.

Recent articles by Lou Agosta

• An Interview with Malcolm Gladwell
• An Interview with John Sall, Co-Founder of SAS
• News and Analysis: SOA Reengineers Healthcare
• Reengineering Healthcare: Healthcare Information Technology Trends Get Traction