Strong Medicine

There is a ray of hope for CFOs who would like to upgrade the condition of corporate health-care plans from "critical" to "stable." Boosted by a substantial injection of cash from the federal stimulus bill, electronic medical records may help relieve the pain of rising premiums by improving efficiencies in the medical system.

The $787 billion stimulus bill, which President Obama signed into law in February, included $19 billion aimed at offering incentives to hospitals and physicians to replace their tattered manila folders with electronic systems that store patient records. The goal is to improve coordination among health-care providers and make the data easily accessible to doctors, nurses, and lab technicians. Today, the major vendors of such programs take proprietary approaches to electronic medical records (EMRs) — also sometimes referred to as electronic health records — that prevent or inhibit one system from talking to another. Part of the legislation aims to break down that barrier by assigning responsibility for setting interoperability standards to the Department of Health and Human Services, which must issue criteria by the end of the year.

The idea of computerizing medicine is hardly new. President George W. Bush, for instance, hailed its arrival in 2004, vowing that every American would have an EMR by 2014. But doctors have been slow to swallow that prescription. The return on investment in EMRs, after all, mainly benefits insurance companies and the government. Why would doctors — who would reap around 10% of the savings — spring for the upfront costs, not to mention the requisite training and potential disruption to daily operations? Now, thanks to the stimulus bill, there's a clear answer: they'll make less money if they don't do it soon, and if they put it off for too long they'll actually lose money.

Beginning in 2011, physicians deemed to be "meaningful users" of EMRs — that is, fully automated and conforming to standards that have yet to be set — will be eligible to receive between $44,000 and $64,000, paid out over five years in the form of increased Medicare and Medicaid payments. Those who start sooner, in 2011 or 2012, will be able to receive bigger first-year incentive bonuses ($18,000) than those who start later. Incentives for hospitals start at $2 million annually, and include additional money based on Medicare-patient volume. But come 2014, the payments disappear, and in the following year the stimulus reverses direction: physicians and hospitals that have failed to institute an EMR system will see reimbursements for government-financed care decrease by 1% a year, reaching a maximum of a 5% reduction by 2020.

Hospitals also have another new incentive. As of last year, 23 states had passed laws declaring that Medicare will no longer reimburse hospitals for avoidable medical errors, known, curiously, as "never events," such as amputating the wrong limb. Some private insurers have followed suit, adding a similar provision to their contracts. A move to electronic recordkeeping should safeguard hospitals against such expensive, reputation-mangling errors, reducing malpractice suits and facilitating more preventive care. "Human beings make mistakes," says Rick Jung, chief operations officer of Medsphere Systems, which markets open-source health-care software by subscription. "So the hospitals with EMRs have a big advantage."

Positive Side Effects
Just as technology streamlined industries like retailing and financial services, it should create efficiencies in health care that will slow premium growth from its traditional annual rate of about 7%. Malpractice insurers have already linked electronic systems with better-quality care; some will reduce premiums by as much as 5% for doctors who have gone digital. "If the overall cost of medical care goes down because we are managing those costs better, then in theory premiums ought to go down," says Chuck Orlando, senior vice president and CFO of LifeBridge Health, a nonprofit that runs two acute-care hospitals in Baltimore. "It's a competitive industry, so you would expect that."

Once small practices and big hospitals have shifted to a reliable electronic platform, health plans may be able to look for patterns in the data, using it to assess the cost-effectiveness of different treatments. Such an aggregated database could also be used to advance the cause of "evidence-based medicine" and to set performance goals for doctors. "EMRs capture and analyze data instantaneously at the point of care, which can then be processed and supplied to providers," notes Ed Dallwein, CFO of CareTech Solutions, a supplier of health-care IT and information-management solutions.

As one result, the government and insurers may change how they reimburse health providers, and may set benchmarks for different aspects of a patient's care. CFOs and insurers may agree, for instance, to reimburse 85% of a hospital's fee, using the data to back up their conclusion that some steps in a patient's surgery yielded suboptimal results. "CFOs are going to have to become literate about clinical processes because payments are going to be based on breaking down the various clinical processes and rewarding the outcomes," predicts Paul Keckley, executive director of the Deloitte Center for Health Solutions.

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