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Best HITECH Strategy? Rush In or Watch & Wait

April 21, 2009
by flpoggio
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How did we get into this economic mess? The partial answer is people borrowed money on terms they did not comprehend, or terms that were not fully disclosed. Then a couple of years later one fundamental rule changed — housing values, it appears, can go up and down, and yes Virginia, you can lose big money in real estate.

So now hospitals under the new American Recovery and Reinvestment Act (ARRA) are being given the same wonderful opportunity. Borrow money from your rich (but debt ridden) Uncle to buy a shinny new EMR and agree that he can define the interest and repayment terms when he gets around to it. The recent HIMSS conference was replete with sessions telling you; Get the money now, buy a system soon, you don’t want to get hit with a penalty in 2015, and make sure you get your piece of the pie.

So like lemmings to the ledge we run.

When the rest of the world is yelling at you to jump with the lemmings, why wait?

There are at least three big reasons.

1) When was the last time you saw ‘on time’ regulation?

I have worked the healthcare industry for 35 years and cannot remember one major piece of legislation that met its original target dates. I lived through TEFRA, DRGs, HIPPA, UB-82, ICD10 and dozens of others. Not one made the original and, in many cases, second target dates. Amtrak has a better on-time schedule. What makes us think ARRA will be any different? I’ll bet my reputation that all the dates get pushed out, probably by years.

2) Meaningful what?

Nobody knows and the committee will decide. So what happens after you sign on the dotted line and two years later you learn the system cannot support all the meaningful use measures the committee came up with? I know what you’re thinking. Sue the ### vendor!

But that assumes the vendor allowed a clause in the contract warranting performance for all ‘meaningful use criteria.’ And that clause will no doubt go on for pages, since there could be cases where the system has the tools to support meaningful use, but it doesn’t fit with your workflow, and staff is not willing to deploy it.

Under Sarbanes Oxley, vendors that are public companies cannot book any revenues on contracts with open-ended contingencies. Getting a vendor to sign on that dotted line will be a super major task. Private companies like Epic and Meditech don’t have to worry about quarterly revenue pressure so they may be more willing. But still they could be taking on significant product liabilities. This one will be a big revenue generator for the lawyers.

3) The feds giveth, and the feds taketh away, or there is no such thing as a free lunch.

We get $20 billion for IT on Monday, and in that same week, on Thursday, President Obama announces he intends to cut the healthcare budget by $160 billion. So he expects an eight-to-one ROI. Not a bad investment. When was the last time your information system generated that kind of return in three years?

As a former hospital CFO, I would at least hesitate to jump at the chance to lay out $10 million for a new system, when I know over the next three years my Medicare /Medicaid payments are going to be cut by $80 million? Do you know of an EMR vendor that will guarantee you an eight-to-one ROI?

Which strategy, what risks – run the numbers.

1) Strategy 1: Jump now.

Say you’re a 250-bed community hospital and you commit $5 or $10 million now on an EMR hoping to get paid later and avoid ARRA penalties in 2015. If you have a 50 percent Medicare population, the potential penalty is a ¾ point reduction in your Medicare market basket index for that year. So if it comes in at 2 percent (it hasn’t gone over 3 percent in years, and can get as low as .5 percent) that means your increase in Medicare dollars will drop from about $900,000 to $675,000.

What’s the upside of jumping now?

- You avoid a $225,000 Medicare cut in 2015.

What the downside risks?

a) A bad investment of $5 million because they changed the rules, or you signed up with the wrong vendor.

b) Trying to force a system in will taint all future IT attempts and can shorten the life span of any CIO.

c) Legal and other costs to sue the vendor.

d) The pain of having to change out the system again.

2) Strategy 2: Go to the ledge, hold on and just look down.

This is a buy time strategy. You wait for another year to see how the regulations shake out. You start a process now, but take your time and do it right. Your betting the dates will get pushed out and, as noted earlier, history is on your side.

What are the downside risks?

a) Dates hold and you must incur reduced Medicare payments of $225,000.

b) Worst case you are another year late and it costs you about $450,000.

What’s the upside?

a) You have a solid system with user buy in and it meets the meaningful use criteria.

b) You haven’t turned the hospital upside down to force a system in.

c) You save a bunch on legal fees – probably equal to that same $225k you lost from Medicare.

d) You should easily recoup the $225,000 loss from taking the time to select a system that does more than just meet meaningful use and really works in your environment.




For a 250 bed hospital a rough calculation for the Medicare piece could come to about $2.4 million. But that assumes they met ALL meaningful use criteria (I call them MUCs).
Assuming they don't change the rule/formula/ amount latter on. Expect something like "Oh, we can't pay it all because of big budget deficits. Sorry."

So if your pretty sure you can meet all the MUCs...and I can't believe for a minute that more than 20% of the hospitals will considering the way Medicare doles out incentives (look at P4P), it could be positive. My take is if you are not well into implementing an EMR /CPOE by now it's a safer bet to play the waiting game, for the reasons noted earlier.

Again history tells us none of this will happen when they say it will. So be calm, and look before you leap.

Thanks Frank. Your observations and conclusions seem valid. My experience with just the physician incentive programs of the last two years are consistent with your cautions.

Let me play Devil's advocate. I tend to agree with all that was posted so far, including Dr. Budman's suggested alternative. However, for some hospitals, clinics, and individual practices, none of this may make any financial sense at all. Here's why. It is estimated that it will cost in excess of twice any of the incentives to install and maintain these EHRs over to course of the incentive period, while the future costs are left to be borne by the using community. With that negative capital flow, the paucity of the actual penalties, the uncertainty of the actual incentives and support and how they will be determined and with the expected reductions in the Medicare/Medicaid reimbursement schedules as the costs of these plans are trimmed, who in their right mind would rush to do anything right now? Not very many as you all rightly suggest.

If, however, we leave the financial discussion to rise or fall of its own weight, and we begin a discussion of the role of an EHR in terms of patient care and patient safety, the calculus might just change enough so that any incentives may be welcomed and put to good use.

I'd like to throw in my small but meaning two cents versus your well spoken ideas. OUTCOMES! Using a proven, open source EMR based on VistA won't break the bank, will have meaningful use regardless of some committee's definition, and will go far in terms of patient safety and organizational communication. This isn't lemming behavior, this is visionary insight. Knowing the VA did it means small community hospitals can do it, too. Waiting means losing lives now and spending more money in the future.

You have a good point that I did not address - the ongoing costs.
As for the last part of your comment re: real long term benefits, I also agree. But to get there will take big investments beyond what ARRA will cover and what with Obama saying he wants to cut health care payments sooner more than latter (and AHA agreeing) where's the investment money going to come from?

Frank. This is the most sensible take on how to approach the potential stimulus funds that I have seen. I wholeheartedly agree with your approach for caution and prudence.

I'm following you on the penalty side. I'm also following you on the 'unclear' criteria and dates that historically don't stick. I don't see where you're factoring in the incentive payments to hospitals. Please help.