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Electronic Health Records (EHRs)
By Don Fornes
[Founder & CEO, Software Advice
]
EHR software vendors aren’t churning out profits like you might expect. You’d think that the Federal subsidies for EHR implementation would create a rising tide that lifted all boats in the EHR software industry. In reality, some vendors are about to capsize.
Based on data points I’ve observed in the market over the past few months, I think some vendors are facing a cash flow crunch. They’re thrilled to have the wind at their backs for once, but the pace is proving hard to maintain as market evolution has accelerated under the unnatural effect of government subsidies.
Here’s the problem.
EHR Vendors Are Spending Money Like Crazy
Most software markets evolve over a twenty or thirty-year period. Consider the enterprise resource planning (ERP) market: the first ERP vendors were founded in the early 1970s, but rapid growth and innovation continued until about the year 2000. The EHR market, however, will mature in the next five years. This is because healthcare providers are buying EHR systems sooner than they otherwise would, to make the most of massive federal subsidies and avoid penalties. Consequently, EHR vendors are in a mad rush to gain market share.
Those that win will own a massive customer base paying recurring support fees. Those that lose will become irrelevant from a market share standpoint and will be ingested into a larger vendor (if they’re lucky; some will just go broke). As a result, EHR vendors are increasing their R&D budgets to develop new features and meet meaningful use criteria. Their marketing colleagues are spending heavily on demand generation and brand building. These vendors have no choice but to win today’s market share battle.
But Medical Providers Are Gun Shy
Almost a year and a half passed between when the American Recovery & Reinvestment Act (ARRA) was signed in 2009, and the final definitions of “Meaningful Use” and “Certified EHR” were issued in July 2010. Certainly that process was no small task, but during that time, most providers took a wait-and-see approach to EHR adoption. There have been tens, maybe hundreds, of thousands of practices out kicking tires, but fewer than expected are writing checks to buy an EHR system. Furthermore, a disproportionate share of these deals – I’m estimating >60% – are going to the top ten market leaders, which is typical of enterprise software markets.
With meaningful use criteria now defined, I believe demand trends have improved. Providers now have the clarity necessary to make purchase decisions with confidence. That can’t happen soon enough, however. EHR spending has to catch up with the investments these vendors have been making over the past two years.
And Subscription Pricing Constrains Cash Flow
To complicate matters further, the software industry as a whole is shifting to cloud computing. Providers have not yet embraced the Cloud en masse, but they have embraced the subscription pricing model popularized by Cloud vendors. Why make a large, up-front investment in a perpetual license when you can just pay monthly for what you consume? Subscriptions are even more logical in light of a five-year subsidy payout.
To meet physician demands, the major EHR players are now offering low monthly pricing and publishing it right on their home pages. EHR vendors love this recurring subscription revenue, but their cash flow is spread out into the future as a result. It takes a healthy balance sheet to withstand this transition.
So what do we have so far?
- EHR vendors are investing lots of money;
- providers are writing fewer checks than expected; and,
- checks that are written are smaller and spread out.
The result is a very difficult cash flow scenario for many, but not all, EHR vendors. Lately, I’ve seen some EHR vendors stretching their payables out 90 or even 120 days. Meanwhile, I’ve been surprised to hear that some leading vendors are operating between breakeven and just a few points of profit margin. Both practices represent good financial discipline considering the pace of market evolution. In reality, however, some vendors are struggling – “taking on water,” to stick with our nautical imagery.
Buyers Beware
The EHR and practice management markets have always been highly fragmented into hundreds of software vendors, largely as a result of the need to service small and demanding local practices. As a result, providers have seen plenty of vendors fail to reach critical mass, then close up shop or sell out. Anecdotally, I also know that some of the leading EHR vendors grew their top line 30% to 60% last year, while laggards foundered. Gaps between winners and losers are expanding quickly, so expect to see more consolidation.
Vendor size is important, but isn’t the deciding factor for success and viability. In this intense market, success will result from execution. The winners and losers will be determined by the competency and discipline of their management. EHR vendors must spend with discipline and generate a strong return on their investments. It wouldn’t hurt to raise capital, either, but not all vendors will need to take this step.
It’s tough for providers to assess the financial viability of private EHR vendors. Software Advice offers our Guide to Assessing Medical Software Vendor Viability, but the industry really needs a trusted third-party to evaluate the 400 plus vendors. Organizations like CCHIT, InfoGard and ICSA Labs are all certifying EHRs against functional criteria. However, buyers also need the equivalent of an A.M. Best orMoody’s to rate the financial health of EHR vendors. Okay, maybe without the negligence and bias the later demonstrated during the mortgage bubble.
Assessment
Link: http://www.softwareadvice.com/medical/electronic-medical-record-software-comparison/
There will be some big EHR winners within the next five years and consolidation will be a net positive for the industry. However, buyers must be careful not to become collateral damage as the fierce battle for market share plays out. It’s important to determine which vendors are closing businesses, growing their revenue and building a sustainable, profitable business. Providers should keep in mind that their success is tied to the success of the software vendor that will enhance and support their EHR system in years to come.
Conclusion
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Filed under: "Doctors Only", Information Technology | Tagged: AM Best, ARRA, Certified EHR, Don Fornes, EHRs, electronic health records, EMRs, HITECH, Software Advice |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
HIT Vendors and eMR Ethics
The fields of medicine and information technology (IT) each have separate and related ethical considerations not appreciated by eHR vendors.
Ethics may prohibit technology, for example, when using a specific application that would make a security breach likely. However, ethics may also demand technology.
For example, let us suppose that a new surveillance application would improve public health — is it not ethically imperative to utilize it to save countless lives? But, suppose it also almost guarantees a security breach — what does the ethical position on use of the application become then? This is an extreme example, though not completely unrealistic.
Complicating the picture is the fact that IT in the healthcare arena has so many and varied uses.
For instance, office, clinic, and hospital-based medical enterprise resource planning (ERP) is based on the same back-end functions that a company requires, including manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting. ERP software can also aid in the control of many business activities, like sales, delivery, billing, production, inventory management, quality management, and human resources management.
However, other applications particular to the medical setting include the following:
• The EMR, which has the potential to replace medical charts in the future, is feasible.
• Healthcare application service providers (ASPs) are available via Internet portals.
• Custom software production may produce more solution-specific applications.
• Medical speech recognition systems and implementation are replacing dictation systems.
• Healthcare local area networks (LANs), wide area networks (WANs), voice-over Internet protocol (IP) networks, Web and ATM file servers are ubiquitous.
• The use of barcodes to monitor pharmaceuticals is decreasing the chance of medication errors and warns providers of potential adverse reactions.
• Telemedicine and real-time video conferencing are already a reality.
• Biometrics will be used more often for data access.
• Personal digital assistants (PDAx) wireless smart-phone connectivity, which relies on digital or broadband technology including satellites, and radio-wave communications are increasingly common.
• The use of wireless technology in medical devices will be increasing.
All of these applications offer advantages, but the security of these IT methods and devices is not yet fully standardized or familiar to health professionals. They all involve inherent ethical, security and privacy risks, and the prudent healthcare organization will want to ensure that these risks are identified and contained.
Any other thoughts?
Dr. David Edward Marcinko MBA CMP™
http://www.CertifiedMedicalPlanner.com
[Publisher-in-Chief]
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eHRs are Primary Care Focused
Most major vendors design their EHRs for practices of different sizes, not specialties.
For example, Epic targets big groups, Greenway [here in Atlanta and soon to go IPO] midsized-groups, and eClinicalWorks, small practices. Giant Allscripts offers products for all three categories.
But, although the vendors claim to have versions for many different specialties, they’re still primary care-oriented.
Dr. David Edward Marcinko MBA
[Editor-in-Chief]
http://www.BusinessofMedicalPractice.com
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Confidence Up in Small / Medium Medical Practices?
Sixty percent of physicians in small or medium-sized practices say technology has made things easier for them, and nearly half say business is better this year compared to last, according to a new survey released by EMR vendor Practice Fusion.
http://www.healthcareitnews.com/news/buoyed-it-small-practice-confidence
Patrick
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Sporting fun
Are you in a sporting good mood this morning? Are you up for some orneriness for a good cause? Would you like to watch NextGen executives either respond to a simple question about their product’s cost, or look silly … or both?
If so, “like” the NextGen Facebook and then simply like my question asking for proof that their electronic dental record system will save money over paper dental records. Other than NextGen, what can it hurt?
https://www.facebook.com/NextGenHealthcare
Think about it, Doc. Unresponsive and unaccountable NextGen officials intend to mislead you to make a sale. That sort of pisses me off. Doesn’t it you?
Darrell K. Pruitt DDS
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Half of All EHRs Sold are Replacements
Use of electronic health records (EHRs) is snowballing, and so is the number of unhappy users.
http://www.medscape.com/viewarticle/769085
Half of EHR systems sold to physician practices are now replacements, up from 30% last year, according to a recent study by research firm KLAS.
Patrick
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25 questions for vetting EHR vendors
When your practice is ready to purchase an electronic health record system, you’ll want to be sure you’ve thoroughly checked out each vendor finalist before you sign that contract.
http://www.physbiztech.com/best-practices/technology/25-questions-vetting-potential-ehr-vendors?email=MARCINKOADVISORS@MSN.COM&GroupID=116654
Ann Miller RN MHA
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Massive EHR Shakeout Could Cause Providers Millions in Lost Benefits
The long-anticipated shakeout in the EHR market is underway. A Modern Healthcare analysis of federal records shows there has been a massive drop in the number of software developers with clinical computer systems tested and ready for use in the second phase of the federal electronic health record incentive payment program, portions of which go into effect this week.
Hundreds of hospitals and thousands of office-based physicians caught with underrated EHRs are now facing the prospect of losing full Medicare reimbursements and missing millions of dollars in future payments from the health IT incentive program, which so far has pumped $16.2 billion in federal aid to the industry since 2011.
Just under a thousand software developers had their EHR technologies certified under 2011 standards that met the Stage 1 “meaningful use” requirements under the 2009 American Recovery and Reinvestment Act.
But, the more stringent Stage 2 requirements, which go into effect Oct. 1st for hospitals and Jan. 1 for physicians and other eligible professionals, have many vendors pole-axed. Just 79 health IT developers have certified systems ready for the government’s mandatory 2014 standards.
Source: Joseph Conn, Modern Healthcare [9/28/13]
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ONC Scraps Proposed 2015 Edition EHR Testing Criteria
The Office of the National Coordinator (ONC) for Health Information Technology has abandoned its proposal to create non-binding testing and certification criteria intended to prepare EHR vendors for coming requirements for electronic health-record systems. In a 187-page final rule leased Wednesday, the ONC formally scrapped the plan for a voluntary 2015 Edition of EHR testing and certification criteria.
The ONC said Tuesday, “We note that EHR technology developers do not have to update and recertify their products to the 2014 Edition Release 2, nor do participating hospitals, physicians and other eligible professionals have to upgrade their existing 2014 Edition software to Release 2,” according to the rule. Rather, it asks that participants merely consider whether Release 2 “offers any opportunities they might want to pursue.”
Source: Joseph Conn, Modern Healthcare [9/10/14]
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