With the Defense Department’s recent $4.3 billion award to the Leidos-Cerner team and Stage 3 to be the final stage of the Meaningful Use program, the electronic health records market is poised to enter a new era over the next few years marked by technological innovation and lower pricing models.
So argues Judy Hanover, research director of provider IT strategies at IDC Health Insights. Hanover and her colleagues at IDC just released their findings in a new report that discusses DoD’s decision to award the multibillion-dollar EHR modernization contract to Cerner, which beat out an IBM-led team that included competitor Epic Systems.
“The impact of this award will be significant because it will end a period of open-ended and premium pricing for EHRs that to date has been largely driven by government incentives but which in the future will be driven by calculations of business value and return on investment,” states the firm. “The DoD’s huge, complex, and highly publicized award will create a new benchmark for ROI in the market for EHRs in large healthcare systems (private and governmental), which will exert far-reaching implications on buying decisions by the largest provider organizations, particularly in the U.S. private healthcare market.”
According to Hanover, the pricing in itself for the DoD award was “pretty remarkable for a project of that size” and is indicative of where prices are headed in the future. DoD’s contract award to Leidos/Cerner was for $4.3 billion over 10 years. Over 18 years, the total estimated program costs are estimated at about $9 billion.
“Epic was considered the odds-on favorite and it was considered a done deal,” says Hanover. “However, it was great to see a real IT-driven strong calculus around total cost of ownership by the DoD in this particular decision.”
In addition, she believes DoD’s contract award to the Cerner team was a “strong statement about interoperability and open systems” in light of Epic’s reputation for being “closed” and “proprietary.”
While financial incentives in the American Recovery and Reinvestment Act have led to widespread adoption of EHRs nationally, Hanover says that given the fact that Stage 3 is likely to be the final stage of the EHR Incentive Program the industry is preparing for a “post-Meaningful Use” era in which incentives dry up, opening more opportunity to innovate and replace outdated products at lower price points.
“We’ve seen a lot of indications in the market with the end of the Meaningful Use incentives that there is a resetting when it comes to value,” observes Hanover. “The Meaningful Use era is nearly over and we’re looking at an era where there is opportunity for innovation by these EHR suppliers to take decision support, interoperability, and functionality to a new level that end users will value.”
IDC is not alone in seeing a change in the EHR market. According to Millennium Research Group, with the ongoing EHR market saturation, most system purchases through 2022 will involve replacement sales—not new system sales—and purchases made by smaller practices that previously could not afford the systems.
For its part, research firm Hexa Reports projects that the worldwide EHR market will reach $29.81 billion by 2022 driven in part by the “lucrative growth” ofweb-based solutions during the forecast period due to low set-up costs and ease of accessibility, as well as growing demand for cloud-based healthcare database management. Web-based EHRs are particularly attractive for physician practices with limited IT resources because the systems are hosted and maintained offsite by the vendor. In addition, web-based EHRs do not require a large initial investment, making these systems more accessible and affordable.
Once implemented, EHR systems have exorbitant maintenance costs, according to Hanover. Maintaining EHRs requires ongoing expert technical support indefinitely beyond implementation to address upgrades and security needs, among others.
“We’re talking about installed systems that represent massive maintenance costs annually,” asserts Hanover. “When we talk about annual costs, we’re talking about perpetual licenses with huge maintenance costs and solutions that have major upgrades every time there is a new regulatory requirement as well as staff augmentation required to maintain these systems long term.”
Lower-cost cloud-based EHR systems—with lower maintenance costs long-term and less on-site IT staff— will be more attractive to providers in the future as they consider ripping and replacing their EHRs, she says.
“Rip and replace right now doesn’t make sense for most health systems,” particularly in the inpatient market, advises Hanover. “However, I do think solutions are coming to market that present a compelling total cost of ownership benefit over the maintenance costs of the current generation of solutions.”
Overall, she argues that Meaningful Use set the bar too low for technology “keeping healthcare on the second-tier platform—client-server systems—not allowing us to move to the cloud as other industries did because we were so focused on adding the functionality required for Meaningful Use.” But, Hanover concludes, that is all about to change.
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