WASHINGTON – Free is not cheap enough.

If there appears to be one point that healthcare payers, providers and policymakers appear to agree on at the Health Information Technology Summit in Washington, D.C., it's that free hardware and software will not be enough to drive IT adoption among the nation's cadre of physicians, nurses and other clinicians.

Today, a public-private collaborative of more than 100 stakeholders, Connecting For Health, released a groundbreaking report that argues payers – including the federal government – ought to provide incentives of $3 to $6 per patient visit, or up to $1 per patient per month in a capitated system, to physicians who adopt electronic health records.

"Electronic health records have the potential to help reduce medical errors, lower costs and empower patients," said Carol Diamond, MD, managing director at the Markle Foundation and the chairwoman of Connecting for Health. "However, without the widespread adoption of electronic health records by small and medium physician practices … and the requirements for achieving the interconnectivity necessary to allow for the effective exchange of health related information, the benefits of information technology cannot be fully realized."

The Connecting for Health report, "Financial, Legal and Organizational Approaches to Achieving Electronic Connectivity in Healthcare," concludes that the current business case for the adoption of healthcare IT systems is not sufficient. New financial systems, it argues, are necessary to encourage healthcare providers to adopt IT systems that allow for interconnectivity to improve the quality of care. The report's authors estimate the range of incentives to be $12,000 to $24,000 per full-time physician per year.

"There are reviewers who felt this number was too high, and there were reviewers who felt this was too low," said Partners Healthcare Systems CIO John Glaser, a co-author of the report. But he felt that somewhere within this range was a figure appropriate to drive the adoption rate to the tipping point necessary to achieve the benefits of interconnectivity.

The report also finds that initial financial incentives for small and medium-sized practices will need to cover most of the costs of adopting electronic health records, but that over time, these incentives will transition to performance-based incentives.

In a keynote address Thursday morning, National Health Information Technology Coordinator David J. Brailer, MD, acknowledged that without the participation of most medical practices, the concept of a true network would be devalued, perhaps fatally. "If we don't bring them aboard, we won't get the network benefits," he said.

Brailer, who has deflected calls for changing Medicare reimbursements to reward physicians who use IT or direct financial compensation, called on the industry to develop an EMR aimed at small group practices with a price point of $100 per month. Although he said he wasn't sure that he had the correct price point, he argued that most offerings simply priced small and medium-sized practices out of the market. If that remains the case, he said the U.S. healthcare system would be divided into a system of IT haves and have-nots.

"Help us think through the dilemma of a two-physician office," he said, "that wants to use an EMR but can't afford the costs or time needed to implement one. The industry is not ready to do this… How do we help the purchasing process?"

But Wellpoint CEO Loenard Schaeffer warned that Brailer's approach was unrealistic. Earlier this year, his company offered physicians $42 million in hardware, software and support, and Wellpoint was disappointed in the uptake.

"Of the 25,000 physicians contacted, only 19,000 accepted these free gifts," Schaeffer said. "And of those 19,000, only 2,700 physicians chose e-prescribing PDAs. The rest selected a paperwork reduction package."

The lesson for healthcare IT adoption? "Free is not cheap enough," Schaeffer argued. "We have to do more than give it away… We have to incent clinicians to adopt IT and use it."

Don't blame the doctors, said David Bates of Brigham and Women's Hospital, in Boston. "The biggest issue, the elephant in the room, is the misalignment of incentives. Eighty-nine percent of savings that are achieved don't go to physicians, but to insurers and purchasers. Only 11 percent go to physicians."

"There's an incentive imbalance," agreed Partner's Glaser, who cited the same figures in his presentation Friday morning. "We need to address that."

Brailer, strictly speaking, hasn't ruled out direct compensation to physicians. He said the federal government was preparing its own financial analysis, and that three possibilities were still under consideration: exemptions to the STARK rules that might otherwise prohibit collaboration between physicians and hospitals on IT projects, pay-for-use, and pay-for-performance, which would rely on outcomes data for compensation.