Thinning the herd: Why physicians will benefit from the mass consolidation in the EHR industry

By Michael Brozino
09:45 AM

After a glance at the state of the electronic health record (EHR) industry, it’s clear that it’s not 2009 anymore. Companies are being acquired, going out of business, facing lawsuits from users and even the major vendors are reporting sales losses that would have been unheard of just two years ago.

The EHR market is not dying, but it is changing. And that’s a good thing—for reputable EHR vendors, physicians and the healthcare industry. In the coming months, before the Meaningful Use Stage 2 attestation begins, we will see the exit of more EHR companies who only launched to collect those government incentive dollars. Physicians, likewise, who rushed to adopt systems to collect the incentives and avoid the penalties, will replace software that is too expensive, too cumbersome, and prevents them from achieving Stage 2 and beyond.

Four years later, we’re seeing the fallout of the Meaningful Use madness and the beginning of the replacement market. This time, however, the physicians who are searching for a new EHR system have the advantage. Burned by the ludicrous hardware, software, training and hidden costs from their first installation, physicians now face a product market with lean, cloud-based systems; minimal monthly costs; hours instead of days of training; and more responsive service and support. In short, better days are ahead.

The HITECH gravy train

The Health Information Technology for Economic and Clinical Health (HITECH) Act devoted $25.9 billion to HIT programs and $20.6 billion of that funding was earmarked to expand EHR system adoption and to reward physicians and hospitals for successfully attesting to the Meaningful Use of EHRs.

Those dollar amounts created a groundswell of business activity. As many as 300 EHR companies launched after HITECH was announced bringing the estimated total in 2012 to more than 600 vendors, according to an industry consultant.1

Many of the companies that launched in that time offered unproven, hastily built software. Instead, these companies invested in expensive advertising and marketing campaigns. They hired large sales forces that made false promises about the systems’ functionality, efficiency, improved clinical environment and healthier patients. Some vendors even attempted dubious business models, offering their system for free if physicians could stomach having pharmaceutical and device advertisements on the screen next to a patient’s chart.

Similarly, physicians were highly motivated by Meaningful Use, with many succumbing to the “three P’s” when shopping for their EHR system. Those P’s were:

  • Panic: Physicians were—and still are—attracted to earning the potential $44,000 over the five years of Meaningful Use program, but they were more panicked that they would be penalized if they did not implement and begin attesting to Meaningful Use by the 2016 deadline, which would cut one percent of their Medicare revenue.
  • Promises: Promises of efficiencies, improved care quality and—most importantly—earning those Meaningful Use dollars, lured many physicians to fork over their hard-earned dollars for a system that may have been dazzling to look at, but difficult to practice with and far more expensive than they were led to believe.
  • Price: Many smaller practices were influenced by the price of the EHR system, which attracted some to the “free” solutions. Less ethical companies misled practices with a free or low-cost EHR system only to gouge the physicians on the practice management software’s price, or to obligate them to a revenue cycle management service that siphoned a portion of their billings.

Before physicians knew what hit them, they had invested more than $100,000 and were saddled with massive, overpriced, complicated systems that were not built for their practice environment. While other practices tried to limp their way through Meaningful Use Stage 1 with free, but shoddy, ineffective software that barely met their needs. Eventually, we all woke up.

The morning after

The backlash has begun. In the first quarter of 2013, 31 percent of EHR system buyers were replacing their current system, up from 21 percent in 2010, according to Software Advice, a research and consulting firm. More than 60 percent of those buyers were replacing their system due to dissatisfaction with their current software.

Not only are physicians replacing their systems, but they are also filing lawsuits against EHR companies for breach of contract. Due to this market oversaturation and declining sales, even vendors themselves are turning on each other with litigation, an interoperability alliance and public smearing in the press, due to market oversaturation and declining sales.

During this tumult, the herd is thinning. Seemingly every other day we see an HIT company leaving the business or announcing that it’s been acquired for an “undisclosed” amount, meaning someone is not proud of a deeply discounted sales price. Meanwhile, EHR companies are quietly shopping around their physician-customer base in hopes of being saved by another vendor.

Today, more established companies with successful business models include cloud-based, SaaS solutions, where the only IT infrastructure a practice needs is a stable Internet connection. Gone are the huge upfront costs and long-term contracts. Companies are now offering systems with affordable fees in the low hundreds per month and month-to-month agreements. This is especially attractive to smaller practices that were particularly burned by the exorbitant hardware and training costs and subsequent disruptions to their productivity.

Advantage: Physicians

While EHR vendors may be panicking, physicians who are in the market for a replacement system have the advantage. Practices no longer have to pay huge fees to compensate companies for their expensive sales forces, trainers and value-added resellers. That doesn’t mean, however, physicians can’t get burned again. Although the market is friendlier to the smaller practice, physicians should protect their bank accounts by following these tips when researching a new EHR system.

  • Always test drive. Without a sales person peering over your shoulder, take the system for a thorough test drive in your practice. Ask yourself: Is the system easy to use? How disruptive is this going to be to my standard workflow pattern? Can I use my existing forms or am I going to be required to adjust to all new documentation?
  • Explore the roadmap. EHR vendors that are committed to longevity should be happy to present their product roadmap and their plans to achieve Meaningful Use Stage 2 and 3 and beyond. Find out how much the company spends on research and development. If they’re unwilling or unable to share plans for the future, then look elsewhere.
  • Talk to real customers. Any EHR company can hand you a list of satisfied practices to speak with, but try to go deeper and find physicians who aren’t pre-screened. Ask the vendor-approved physicians if they know of any other practices that aren’t on the list and then give them a call.

Although disreputable and incompetent EHR companies have created havoc and wasted money in practices and the industry over the last few years, there have been positive outcomes. The most encouraging result is that practices are realizing the workflow efficiency and patient care benefits of eliminating paper. In the coming years, as the Meaningful Use incentive money dwindles and more companies disappear, we can begin to concentrate on what really matters. Not government checks or software adoption, but rather how we can improve efficiency, pay physicians faster, eliminate wasteful spending and improve the quality of patient care.

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