EHR Funds Within Sight but Out of Reach

By Jane Horowitz and Fred Bazzoli

Hospitals still need to come up with the money for IT so they can prove that they will make "meaningful use" of stimulus funding.


Jane Horowitz	Fred Bazzoli

For years, advocates of electronic health records (EHRs) have wished to be popular enough that someone asks them to the big dance. Their dreams were realized earlier this year when federal stimulus funds were promised to provider organizations beginning in 2011.

After that initial rush of excitement, most hospitals are now grappling with the reality of what it will take to be let into the dance hall.

While the federal government, some state governments, grant organizations and even vendors are making plans to help defray the costs of implementing EHRs, most hospitals are seeing budgets pinched in the current recession. And for hospitals that are struggling financially, freeing up cash to invest in multimillion-dollar clinical applications is the least of their concerns.

"Most sites don't have that kind of liquid capital," said Colin Beatty, manager in the health IT practice of PricewaterhouseCoopers (PwC). "Many are just putting out fires. They're like emergency medical technicians just trying to stop the bleeding; they don't have the luxury of dealing with cosmetic concerns. They're not worried about five years down the line and what their electronic medical record will look like. It's a much more urgent landscape."

Hard-Pressed Hospital Industry

As the nation's economy tries to pull out of the current recession, hospitals are seeing care costs rise and revenue decline, leading to reductions in staff and capital projects. Health IT efforts, which were receiving more funding and which once were believed to be recession-proof, now are facing scrutiny and calls for belt-tightening from cash-strapped hospitals.

Survey results from nearly 1,100 facilities by the American Hospital Association (AHA) indicate that more than half of the nation's hospitals are planning to reduce the scope of current IT projects or postpone them. The survey, released in April, also noted that most hospitals were seeing fewer elective procedures as well as more patients without insurance coming through their emergency departments. Despite cost-cutting initiatives, the AHA noted that nearly 40 percent of the nation's facilities expected losses in the first quarter of 2009.

The impact of cost-cutting in IT was further supported by a recent report from PwC, which indicated that a third of the 101 hospital leaders the consulting firm surveyed had been asked to reduce their IT spending by more than 10 percent, and 67 percent of respondents said they anticipate making further reductions in IT capital and/or operating expenses this year.

An earlier PwC report, aptly titled "Rock and a Hard Place," said that providers are eager to take advantage of the stimulus funding passed in the American Recovery and Reinvestment Act of 2009 (ARRA), but many face a long road in implementing EHRs. In fact, because the stimulus funding will arrive after 2011, and only for those providers able to demonstrate "meaningful use" of EHRs, most providers will struggle to raise funding for the IT investment and successfully implement health IT systems.

"The stimulus funding for health IT is a small carrot compared with the amount of resources it will take to deploy this technology over the next five years," the report states. "Also, providers will feel a big stick of financial penalties if they fail to use government-certified electronic health records in a government-certified manner beginning in 2015."

Sources of Funding

Raising capital is difficult because the recession is disrupting traditional approaches, and the liquidity crisis is roiling the nation's financial markets. The financial viability of some hospitals is also raising concerns among investment bankers and investors.

Hospitals are hoping to get some assistance with capital IT investments from a variety of grant programs. For example, the Office of the National Coordinator (ONC) will have broad powers and $2 billion to fund health IT projects. However, PwC believes that nearly all of those funds "will flow to those that are already using systems in a strategic and government-certified way." Specifics of how ONC will distribute the grant funds are expected this summer.

Grants will come in a variety of other ways. For example, the Health Resources and Services Administration is preparing to offer $850 million in one-time grants under the ARRA for capital improvements to federally funded community health centers. The improvements can include acquisitions of health IT.

Some of the 50 states also have strategies to help providers implement health IT. Daniel Garrett, national leader of the health care information technology practice of PwC, said New York, California and Texas have planned the most. He also said that hospitals in other states face varying levels of sophistication in help with health IT funding. Providers need to know what's happening in their states, said Garrett, and those with hospitals in multiple states might need several strategies for accessing funding.

Other vendors and entities in health care are indicating they may play a role in helping providers implement health IT effectively. For example, General Electric announced in May that it was launching a $6 billion health care initiative, which includes $3 billion pledged for research and development of health IT, along with other tools that could lower costs for hospitals.

At the other extreme, Highmark, a Pittsburgh-based insurer, has announced that it will contribute $1 million to provide training and support for caregivers who adopt EHRs; it's part of the $29 million the company has already offered to providers to get them to switch from handwritten medical records and prescriptions to computerized systems.

While it's hard to say how pervasive such programs will become, it's apparent that vendors are beginning to offer alternative pricing models, said Michelle Blackmer, director of product management for health care at Initiate Systems, a Chicago-based vendor of enterprisewide master person index products that recently produced a Web-based seminar on alternative methods for funding IT projects.

Blackmer said she's seeing other health IT vendors developing leasing models and offering "software as a service" approaches to help providers with the large initial outlay for IT projects.

"We think providers can phase things in; for example, they can start with patient registration if that's the big problem. Then they can go to a solution that connects test results with registration," she said. "Providers can create a stepwise approach and look at creative funding from vendors."

Team Approach to IT

The IT-funding conundrum is one that requires participation and coordination from all top executives within a health care organization, said Garrett of PwC.

"If I were a CIO, I'd recognize that this is an issue and that we need to work as an organization to decide what we're going to do about it," he said. "The executive management team needs to think about where they're going to be able to free up some resources for IT. Some of the things that they're asking of IT are probably not going to be done. There needs to be a transparent way for the CIO to lock arms with his peers and do an honest assessment of where they are. Something is going to have to give."

Cooperation among C-suite executives was a key strategy for successfully implementing clinical systems, as revealed in an eight-part series of virtual idea exchanges conducted by the National Alliance for Health Information Technology (NAHIT) over recent months.

Garrett said organizations can improve IT efficiency by building an in-house IT team that can implement new systems, and by reducing the number of applications operated in a facility, thereby simplifying IT support.

Despite the possibility of grants, creative financing and new strategic approaches to IT, many facilities don't have the financial health to tackle huge clinical IT projects. These facilities are hoping for changes in plans to penalize Medicare payments for facilities that don't have meaningful EHR systems in operation by 2015, said Beatty of PwC.

"Hospitals are waiting because there's no clear definition of terms, such as certification and meaningful use and interoperable," he said. "Right now, it will be a big-ticket item for them, and some of the midsize and smaller hospitals will never have this kind of money to throw at these applications."

Jane Horowitz is chief operating officer at the National Alliance for Health Information Technology in Chicago. Fred Bazzoli is senior director of communications at the College of Healthcare Information Management Executives (CHIME) in Ann Arbor, Mich.

This article 1st appeared on July 20, 2009 in HHN Magazine online site.

To respond to this article, please click here.