A Growth Tonic for Digital Health Records

With its new rule, the Health & Human Services Dept. hopes to spur doctors to store patient data in computers and link them with hospitals' systems

By Timothy J. Mullaney

In a move aimed at encouraging more doctors to keep electronic medical records, the Health & Human Services Dept. will adopt rules that provide greater access to hospital computer systems for outside doctors, BusinessWeek Online has learned.

HHS Secretary Michael O. Leavitt is expected to announce on Oct. 5 exemptions from a federal anti-kickback law known as the Stark Amendment, a section of Medicare law that prevents hospitals from giving doctors financial incentives to direct clients to a specific hospital. The rules would create a so-called safe harbor for technology purchases, letting hospitals rent access to their computer systems to doctors outside the hospital.


  The HHS has long backed efforts that would ask hospitals to bear more of the cost of building regional networks that link electronic health records of hospitals with those in the offices of nearby physicians. The federal agency included such a proposal in legislation that was introduced in June. But the safe-harbor provision was cut from the Senate version of the bill in July. Congressional critics had argued that the proposed exemption was too broad and privately said Leavitt should use existing authority under the law to create an exemption narrowly tailored to let hospitals help physicians with technology investment.

Leavitt's planned exemption is aimed at helping overcome a main reason doctors are loath to invest in electronic health records -- up-front cost. On average, it costs about $35,000 per doctor to set up e-health records in a small medical practice. That's nearly one-quarter the average annual income of physicians in specialties, such as pediatrics and even internal medicine. Plus, there's the cost of seeing fewer patients for a short time while office staff gets up to speed on the new systems. And while some practices report quick returns on their investment -- savings include lower costs for transcribing doctors' dictated notes and lower staffing levels -- other doctors say they've been lucky to break even.

That has helped hold the percentage of small-practice doctors who use e-health record systems to about 13%, says a study by the Commonwealth Fund. Almost all the rest still depend on paper records. And even when physicians store patient information in computers, the data is not networked to local hospitals (see BW, 10/10/05, "Why MDs Are IT-Phobic").

Even doctors who say they've earned back their investment believe the high up-front cost is scaring off peers. "If we knew how much it would end up costing, we probably would not have done it," says Seth Eaton, an internist in Laurel, Md, whose six-doctor practice went electronic last year.


  But the Bush Administration, as well as many Democrats, believe a more automated health-care business will drive huge advances in both productivity and patient safety. The death toll from medical errors -- which different studies put at anywhere from 44,000 to 195,000 a year in the U.S. -- could be cut dramatically if doctors had better information about each patient, say proponents of e-records.

Another goal is to eliminate duplicative testing that results when a doctor at a hospital, for example, isn't aware of results of a test the patient had at an office even days before. An additional benefit -- staving off drug-interaction problems that result when doctors lack information about what medications a patient is taking. Those alone cause an estimated 7,000 deaths a year, according to the Institute of Medicine, part of the National Academy of Sciences.

"It's going to radically change medicine," says Helen Darling, head of the influential National Business Group on Health. "The biggest problem in our country is that we don't have 21st century health IT."


  The HHS plan will encourage hospitals to create networks that tie their computer systems to those in doctors' offices. While details of Leavitt's proposal are not yet known, hospitals have been hoping for a system that lets them serve as regional hubs for networks of individual doctors. This way, a hospital could shoulder much of the initial costs of software and even some hardware, depending on the specific network.

The hospital would then sell what amounts to membership in a network that would connect patient data on file at the hospital with information that lives on computers in each doctor's office. Instead of paying capital costs up front, doctors would pay fees of up to a few hundred dollars a month for a service that manages their records and provides technical support.

The patient's benefit: If someone shows up in an emergency room or goes into the hospital for surgery, doctors will be able to know that patient's medical history, what drugs he or she may be taking, and other information that affects care. And doctors can get care records of a patient received from other doctors, whether the latter are in the hospital or not, as long as the patient gives permission.

"We'd like the doctor to be able to pull up what was done for the patient as an outpatient, so we can provide good inpatient care," says Gerard Burns, director of medical informatics at Hackensack University Medical Center in Hackensack, N.J.


  The Stark Amendment exception has been a centerpiece of the HHS strategy to help doctors pay for implementing e-health record keeping. Estimates of the total cost of wiring all of the nation's doctors and hospitals -- then connecting all those providers into a medical Internet called the National Health Information Network -- run as high as $150 billion over five years. HHS officials don't want to subsidize doctors directly because of budget concerns, and because they want the network's financing mechanism to give doctors incentives to use information systems to improve care quality.

That's why Medicare and other government health-care payers are also moving to tie reimbursement levels to the quality of care provided. The thinking is that pay-for-performance will force doctors to invest in technology systems that will let them track the quality of care that they provide, as well as restructure the treatment process to emphasize preventive care and avoid complication. Says Brent C. James, head of the Institute for Health Care Delivery Research, a unit of the Intermountain Health Care system in Salt Lake City: "I don't think the federal government has to spend a dime."

Mullaney is e-business editor for BusinessWeek magazine in New York

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