The American health care industry is normally described in three distinct sectors – providers, insurers and life sciences. While all three sectors contribute to health care, they operate in very different ways, with periodic blurring of relative roles and responsibilities. Life sciences include multi-national pharmaceutical and biotech corporations that focus on research and manufacturing. The health care insurance industry has consolidated dramatically over the last twenty-five years and now less than half a dozen corporations provide the vast majority of private insurance in the United States. The insurance sector has periodically increased patient care related interventions, but normally has just passed on ever increasing medical expenses to employers. The provider sector consists of a highly fragmented delivery system of primary, acute and post-acute caregivers. This sector is mostly non-profit and historically local and/or regional in nature. All of these sectors are dramatically impacted by government policy and reimbursement rates.
In 2009, Congress passed the HITECH Act and a year later the Affordable Care Act (ACA). The laws created a set of “carrot” and “stick” incentives that resulted in the health information technology boom. The government, armed with $20 billion in incentives told providers to deploy electronic health records and use them in a very prescriptive manner. The activity level has been dramatic. Vendors, consultants and I.T. professionals have had the best bull market in their history. Virtually every health care provider across the country is automating and integrating. I.T. -related capital spending has garnered a disproportionate share for many years. I.T. operating expense has increased dramatically while internal governance struggles to identify and realize tangible offsets in overall operating costs. Given strict deadlines under law, most of these information systems are being “installed” rather than “implemented.” As a result, most providers have deferred difficult workflow and operational decisions until the “optimization phase” currently anticipated to begin in 2014-2015.
Unfortunately, there is an undercurrent to this provider I.T. boom that does not indicate a soft landing. Health related costs are increasing much faster than revenue. Elective procedures have started to decline in many areas of the country. Employers are pushing back on private insurance and employees will pay more. Federal entitlements are under tremendous pressure and our public health care system is fundamentally broken. We are ranked 33rd in population health and spend 100 percent more, or higher, per capita than other developed countries.
Consolidation of physicians and hospitals has exploded. Insurance companies are becoming providers and Wal-Mart and Walgreens have opened up clinics. As total health care expenditures approach 20 percent of GDP, there is little doubt that a major correction will be required. As the financial services market contracted post-2007, we all witnessed a dramatic reversal in how and where their I.T. investments were made. The financial sector merely reacted to a crisis. Hopefully, the re-structuring health care industry will better anticipate the inevitable and minimize their post-boom chaos.
We can see the train coming and have the opportunity to focus on the fundamentals. Health care information technology governance has been more form than function. Demand remains unfettered and resource constraints are real and being felt every day. Alignment of interests remains complex which confuse investment strategies and ongoing expense structures. Few organizations formally define the relationship between scope, service levels and cost. This lack of objective measurement makes it difficult to benchmark and/or improve specific areas of performance. Given that shared savings are generally the initial and primary target for cost reduction, objective measures will be critical to any third-party evaluation. The commercial I.T. outsourcing vendors will be close behind the cost reduction firms. I.T. outsourcing can be leveraged effectively, if and only if, companies understand how to manage their I.T. function with metrics. The suppliers are very skilled with metrics and better with contract management.
Finally, the provider industry has the incredible opportunity to drive immense value from the technology that has recently been deployed. We have the best clinicians, medical schools and hospitals in the world. To date, the complexity and layering of government policies has resulted in a dysfunctional public health care system. The ACA is compelling migration from increasing volume at lower rates to quality and more holistic care. We now must improve workflow, practice variation, quality and outcomes. The EHR, HIE and BI tools will allow us to accomplish these goals if we can overcome the historical roadblocks of fragmentation and unintended consequences. In 1969, we landed on the moon. By 2020, we should aspire to be ranked in the top 10 in population health and not be more than 17% of GDP expense. There’s no doubt that a train is rushing toward health care I.T. The question is, will health care I.T. get hit, or will it figure out a way to get on board before the crash?
Steven Heck, president of the consulting firm MedSys Group, has over 35 years of health care information technology experience. This includes consulting and sourcing skills in the provider, payer and life sciences segments of the health care industry.