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The expense necessary to market eletronic health records (EHR) to hospitals and small physician’s offices will likely make it difficult for smaller vendors to compete, industry experts told Pharmawire. But giants such as Cerner (NASDAQ:CERN) and McKesson (NYSE:MCK) will be capable of keeping up with General Electric (NYSE:GE) as outreach expenses pile up, they said.
Last week, GE Healthcare and GE Capital launched a program that allows healthcare providers to receive interest-free loans and deferred payments for GE electronic medical record products. GE Capital will be providing financing while GE Healthcare provides its EHR product certification warranty.
As previously reported, the spending, spurred by the USD 20bn included in the American Recovery and Reinvestment Act of 2009, will not begin in earnest until early 2010 as two committees within the Office of the National Coordinator for Health Information Technology (ONC) work to establish standards and policy for the implementation of HIT systems.
Frank Clark, vice president for information technology and CIO of the Medical University of South Carolina, said with hospitals trying to qualify for ”meaningful use,” companies will have to become creative with financing options due to the capital drought. The term ”meaningful use” is part the language used in the legislation that will help determine whether providers qualify for EHR funding.
Clark said he thought that many of the major players in the space would take GE’s lead and create a program where payments can be deferred, which would alleviate the upfront capital costs. He added however that the list of companies capable of doing such a plan would be limited to the ”top tier.” He cited Cerner and McKesson as those capable of creating a viable plan, although he noted it would not be the same as GE’s loan proposal. He added that once you got beyond these major players, he did not believe other organizations would have the wherewithal to put into action an agreement similar to the one announced by GE.
He elaborated that a traditional EHR is sold through a license arrangement where individuals and organizations have to come up with the front end capital to acquire a license, the hardware and implementation services. Clark added that the front end capital necessary for this kind of purchase, has been a barrier to entry for many hospitals in the past fiscal year.
A chief medical information officer of a major hospital system said he only saw the other big players in the space attempting to keep with GE in this regard if they begin to gain market share based upon their program. He explained that it would essentially mean establishing a relationship with a bank for the other major players in the EHR space, which could prove very difficult. He noted however that GE’s program may not turn necessarily turn into a larger market share as most hospital would still choose the system that worked best for them. He added that depending on the rating of the organization, it might end up being more expensive for them to go through GE for the loan.
The CIO said when his hospital made the push into EHRs, education and training accounted for approximately 60% of the expense. He explained that back filling positions while training became very expensive; however he noted that this cost was defrayed over a three year period.
Sheera Rosenfeld, director of the health information technology practice at Avalere Health, said the larger companies were at an advantage because of the huge expense that will be necessary for outreach and education to potential customers. ”It’s an intense process. Larger vendors will have an easier time reaching out, running focus groups and educational groups, and will have government affairs staff.”
Last month, Allscripts (NASDAQ:MDRX), one of the largest EHR vendors in the country, announced it was partnering with Cardinal Health (NYSE:CAH) in order to create a distribution network for its MyWay EHR. According to company statements, the deal was made in order to reach the one to three-physician market, a large majority of whom have yet to adopt EHRs, and a market Rosenfeld said would take extensive capital to reach. Larger companies are likely to focus on developing smaller, agile models that would require a smaller capital outlay for small physician offices, she said. She cited Cerner as one example.
Outreach to the small physician office will be crucial in order to gain market share, according to Bruce Fried, a partner at law firm Sonnenschein, Nath & Rosenthal involved in HIT issues. Fried said this market would likely be one of the slowest to make decisions, both because it would likely take less time to set systems up for smaller physician offices and they would carefully parse the market to address security and privacy concerns.
Pat Duncan, senior deployment manager of clinical informatics/care transformation at McKee, a part of the Banner Health Systems, said that while the certification and the initial cost is certainly a huge capital expense, the education, training and support that comes with EHRs also is a large strain on hospital capital. She explained that integrating a whole hospital system staff is a very large step and the expense can become a major cost of implementation.
She further noted that due to the financial strain that investing and sustained EHRs can create and the status of capital at hospitals, the joint commission said at a visit to McKee that there was no plan to make EHRs a mandate in the short term.
As previously reported, the Certification Commission for Healthcare Information Technology (CCHIT) – the private organization that is at the moment the only certification process – has decided to suspend its certification process until the ONC has set standards. “We want to have as many certified products in the market as there can be,” said Sue Reber, spokesperson for CCHIT.
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