Healthcare and healthcare information systems Wendell Murray

Healthcare and healthcare information systems

• Wendell Murray

• Wendell Murray Associates Inc.

• BLN Tuesday, October 17, 2006

• Copyright © 2006 Wendell Murray All rights reserved

Areas covered

• My background

• Healthcare in the United States

• Information system use in healthcare

• Example of a systems project

My background

• 54 years old

• Joined BLN in 2004

• Long-term friend of Norm Liedtke, founding member of BLN

• Started consulting work in 2002

• 1990s manufacturing businesses in northern NY State (Saratoga Springs)

My background – continued

• 1980s

• systems consulting
• financial work
• media/entertainment industry

• Companies

• Accenture
• Home Box Office
• Time Inc.
• The Walt Disney Co.

My background - continued

• Grew up in upstate NY, suburban NJ, northern Vermont

• University of Vermont, Amos Tuck School (Dartmouth College-affiliated business school)

Current work

• Operational improvement, business and financial analysis, systems consulting

• Business development

• Focus on healthcare

• Focus on ambulatory information systems

• Ambulatory = non-hospital

Healthcare in the USA

• Black box for most people

• Overview

• History

• Current trends

• Role of information systems

Healthcare system

• Medical services rather than “healthcare”

• Cure rather than prevention
• Reimbursement pays for procedures
• Role of capitation
• Capitation = monthly payment per patient (capita or head)

• Components:

• Payers (employers, health insurers)
• Providers (e.g. doctors, hospitals)
• Patients
• Suppliers

Healthcare spending in USA

• $1.9 trillion (2005)

• 15.6% of GDP (gross domestic product)

• Per capita $6,423

• Categories 2003 1983

• Hospital care 31% 41%
• Physician services 22% 19%
• Prescription drugs 11% 6%
• Dental/other services 10% 8%
• Nursing/home care 9% 8%
• Administration 7% 5%
• Other 10% 13%

• Administration: cost to government to run programs, net administrative cost of health insurers

• Other: Medical equipment, non-durable products, research, construction, public health spending

Payment sources 2003 data

• Government 45%

• Private 55%

• Specifics

• Medicare 17%
• Federal Medicaid 10%
• State Medicaid 7%
• Other State 6%
• Other Federal 5%
• Private insurance 36%
• Out-of-pocket individual 14%
• Other private 5%

• Other Federal: Military, VA.

• Out-of-pocket individual: co-payments, deductibles,, etc.

Payment sources outside USA

• 100% governmental

• Australia
• Canada
• Japan
• New Zealand
• United Kingdom
• France

• Less than 100%

• Germany 92%
• Italy 75%
• USA 45%

Insurance premiums

• Monthly premium (2004)

• Single $308
• Family $829

• Employee share of premium

• Single 15%
• Family 28%

• Year Per capita % of spending

• 1970 $564 40%
• 2003 $779 15%

Healthcare system – providers

• Providers

• Physicians
• Controlled system since throughout 20th century
• American Medical Association nationally
• State and local associations
• Other personnel
• Nurses
• Other clinical
• Facilities
• Hospitals
• Long-term care facilities (nursing homes, assisted living)
• Rehabilitation centers
• Specialized surgical centers
• Emergency care clinics, walk-in clinics

Annual earnings

• Annual earnings

• All workers USA (2004) $ 33,000

• Healthcare providers (2003) Multiple

• Primary care physician $ 157,000 4.8

• All specialists $ 296,000 9.0

• Neurosurgeon (high specialist) $ 577,000 17.5

• Psychiatrist (low specialist) $ 163,000 4.9

• Nurse anesthestist $ 123,000 3.7

• Nurse practitioner $ 67,000 2.0

• Optometrist $ 100,000 3.0

• Registered nurse $ 49,000 1.5

• Nurse’s aide $ 20,000 .6

Healthcare system - payers

• Payers

• Employers’ role
• Pay on behalf of employees. Employees pay indirectly.
• Bargaining point for unionized workers
• Spread to rest of the economy
• Unique to the U.S.
• Government
• Private insurers
• Indemnity plans – traditional 6%
• PPOs – Preferred provider organizations 49%
• HMOs – Health maintenance organizations 31%
• POSs - Point-of-service 14%
• Individuals

Health insurance categories

• PPO

• Network of providers give care to patients subject to fees negotiated with insurers

• HMO

• Prepaid, closed-network plans
• May contract with independent provider groups
• May employ physicians on staff
• May provide complete services, including ownership of facilities

• POS

• Open-network, may stay in or be out of provider network
• Cost differential between in or out

• Indemnity

• Fee for service
• Co-insurance, deductibles

Healthcare system – suppliers

• Suppliers

• Pharmaceuticals
• Expendible supplies
• Instruments
• Equipment
• Services
• Clinical services (tests)
• Business services
• Information services

Healthcare system costs

• Illustrative comparisons

• National health expenditures (2005 prices)
• 1960 $ 178 billion
• 2005 $1,900 billion ($1.9 trillion)
• Increase 10.7 times
• Per capita (2005 prices)
• 1960 $ 983
• 2005 $6,423
• Increase 6.5 times

Health outcomes

• Number of indices to measure medical outcomes

• Life expectancy

• At birth At 65 At 85

• 1960 69.7 14.4 4.6
• 2003 77.5 18.4 6.8
• Increase years 7.8 4.0 2.2
• Increase% 11% 28% 48%

• Infant mortality (per 1000 live births)

• 1960 26
• 2005 7

International comparisons

• Per capita spending (2003)

• Per capita % of GDP
• United States $5,635 15.0% Highest
• Switzerland $3,781 11.5% Next
• OECD* average $2,280 8.4% Average
• *OECD: Organization of Economic Cooperation and Development 30 industrialized countries

• Health outcomes (2005)

• Infant mortality Life expectancy

• Rank Country Births Rank Country Years

• 1 Singapore 2.28 1 Andorra 83.50

• 36 USA 6.63 38 USA 77.43

Why high costs

• Market power of physicians

• Compensation levels in general are high
• Compensation levels, excess supply of specialists
• Prevalence of pay-for-service
• Cost-based reimbursement until 1983 change in Medicare

• No price rationing of medical care except for uninsured

• Almost all procedures will be paid for

• Payment by employers

• Employees don’t feel the expense
• Health benefits in place of than higher pay
• Tax impact
• Benefit not taxed to employee
• Tax deduction for employer

• Private insurance

• Most countries government primary or only payer: monopsony
• Health insurers’ overhead and activities

• Waste, duplication of effort

• Increasing use of pharmaceuticals

• More used
• More expensive

Recent article on a new drug

• Charging $4,200 a dose for a new version of an old cancer drug has helped make Dr. Patrick Soon-Shiong a billionaire.

• The drug, Abraxane, does not help patients live longer than the older treatment, though it does shrink tumors in more patients, according to clinical trials. And the old and new medicines have similar side effects. An independent review of Abraxane published in December in a cancer research journal concluded that the drug was “old wine in a new bottle.”

• Still, Dr. Soon-Shiong’s company, Abraxis BioScience, has promoted Abraxane as a major advance in treating late-stage breast cancer — that is, for patients who have not responded to other treatments and are now close to death — and is seeking approval for patients to use it earlier in their treatment. And, in at least one way, Abraxane is a breakthrough: it costs about 25 times as much as a generic version of the older medicine, which is best known by its brand name, Taxol.

• Because of the odd economics of the cancer drug market, though, Abraxane’s price does not seem to be hurting its popularity.

• From NY Times October 1, 2006. Quoted in part.

Recent article on a new drug - continued

• About 20,000 people have now been treated with the drug, and Dr. Soon-Shiong expects its sales to approach $200 million this year. By 2010, Abraxane’s annual sales could reach $1 billion, analysts say.

• Those rosy forecasts illustrate the pricing power that makers of cancer drugs wield. With patients often facing grim prognoses and desperate for new therapies, and insurers relatively powerless to negotiate prices or deny coverage, the cost of treatments seems to have little impact on demand.

• The rise in cancer-drug prices is a microcosm of broader trends pushing up health care costs nationally. Despite decades of efforts by governments and insurers to restrain costs, patients continue to want the newest — and most expensive — drugs and medical devices. And doctors and the health care industry have little reason to keep costs in check, because insurers rarely deny coverage for new treatments on the basis of price.

• As a result, health care costs continue to skyrocket. On Tuesday, the Kaiser Family Foundation reported that the cost of employee health insurance coverage rose 8 percent, according to a survey conducted from January to May this year. Businesses now spend about $8,500 a year for health insurance for the average family, the foundation said, with employees adding $3,000, not counting the cost of deductibles and other out-of-pocket payments.

Attempts to control costs

• Nationalize payment mechanism

• Eliminate administrative costs of insurers
• Administration and profit 15% versus Medicare administrative cost 5% of premium income

• Healthcare workers become government employees

• Consumer-oriented healthcare

• High-deductible, so patient feels cost
• Catastrophic coverage
• Tax benefits

• Managed care

Role of information systems

• Information technology investment lags in healthcare relative to other industries

• Same benefits as in other industries

• Remove waste in duplication of effort

• Digitize information once, use it many times

• Provide electronic connection to patients, other providers and payers

Information system suppliers

• Hospital vendors generally distinct from suppliers to physicians offices

• Major systems suppliers to hospitals

• GE
• Siemens
• Cerner (based in Kansas City)
• Epic (based in Minneapolis)

VistA and VistA-Office Veterans Affairs systems

• Well-regarded system
• Key advantage
• no license fee
• Key disadvantage
• no vendor support or training
• VistA: same as used by VA
• VistA-Office: “enhanced” to make more usable to physicians offices
• Medsphere: California company trying to adapt system for private hospital use

Use of EMR systems As of 2006

Ambulatory systems

• Ambulatory market

• Smaller, privately held companies

• Practice management (PM) and electronic medical records (EMR) systems

• PM systems around forever

• Patient demographics
• Billing
• Accounting and administrative needs

• EMR systems over past 2-3 years

• Record clinical information
• Used by providers, nurses and other clinical personnel

EMR system savings

• Global estimates of savings

• $11 billion yearly ambulatory
• $32 billion yearly inpatient

• Specific cases

• My survey of practices across U.S.
• Range of practice sizes
• 7 different software products used
• Mostly primary care (not specialists)
• From slight positive financial gain up to 100% return on investment
• Detailed study of 14 small (2-3 providers)
• 2.5 years payback time, 40% ROI
• Gateway Medical

Ambulatory software vendors

• About 10 major suppliers

• Some large, e.g. GE, Mysis, Epic

• Others fairly small, some private, some public

• eClinicalWorks
• Allscripts (Healthmatics)
• Nextgen
• iMedica

Consensus from survey

• Systems from all vendors work adequately

• No practice would use paper charts again

• No matter what the hassle or cost an EMR is worth it

• Implementation goes smoothly

• Interface to separate (PM) system works adequately

• Some replaced existing PM while installing EMR

• Incremental cost = cost of interfaces
• Many advantages to integrated system
• Less complicated
• Easier for vendor to update code
• Fewer “moving parts”
• Single database

Benefits

• Quality of care is better

• Drug interactions
• 33,000 patients die yearly due to adverse drug reactions
• All patient information available immediately
• Clinical procedures
• Common treatment regimens implemented
• Better prevention tools
• Comprehensive documentation

• Operations are more efficient

• Electronic prescribing/refill management
• Lab ordering
• Electronic messaging internally/externally
• Dramatically improve reporting to payers
• Office workflow improvement
• Patient management
• Reduced clerical input

Provider productivity gains

• Reality is that there are few, but….

• Patient encounters don’t take more time

• Providers generally don't see more patients, but.…

• Providers leave work earlier and….

• Providers can finish paperwork remotely, e.g. from home

Cost

• Six segments of costs

• Initial license fees, i.e. “investment”
• Annual license and other fees
• Custom programming: interfaces
• Third-party licenses: underlying system, e.g. Microsoft licenses, Oracle licenses
• Third-party licenses: drug databases
• New hardware

Gateway Medical

• Primary care practice in Chester County PA

• 28 providers
• 7 medical offices, 1 administrative office
• 100,000 active patients
• 120,000 visits per year
• 120 employees
• $10 million in revenue

Gateway Medical

• Decision to invest

• Push from CMS-funded project to encourage physicians to automate
• Pennsylvania one of several states selected for the project
• Good experience installing a PM in 1999
• Awareness of mandate from Medicare

Gateway Medical

• Physicians perspective

• Most physicians also shareholders in practice
• View system as incremental cost
• Resistance to change
• Fear of technology
• Range of comfort with technology
• None to fairly adept
• Somewhat a function of age
• Spend if CMS mandates

Gateway Medical

• Project development

• Almost 2 years elapsed time to start seeing benefits
• Project started early spring 2005
• Request for proposals late spring 2005
• Proposal review summer 2005
• Software vendor selected fall 2006
• PM installed spring 2006
• EMR installation August-November 2006

Equipment configuration

• Client/server architecture

• Servers

• 1 Application/database server
• 4 Terminal services servers

• Clients

• Existing PCs for office and some nursing staffs
• New wireless Tablet PCs for providers and each provider’s nursing assistant

• Wireless access points in each office

• Offices connected by T-1 lines

System cost

• Third party software licenses $ 54,000
• Healthmatics license fee 232,000
• Hardware costs 205,000
• Implementation 131,000
• Discount ( 62,000)
• Total initial investment $ 560,000
• Yearly fees $ 68,000

Staff/other expenses

• Reductions in headcount:

• Filing needs
• Nursing staff
• Other clinical support staff
• Other administrative staff

• Reductions consistent with experience of other practices

• Pro-active changes to procedures needed to realize these savings

• Eliminate transcription cost

Reduction in headcount

• 2006 2007 Reduction

• Nursing 39 35 4

• Office staff 56 35 21

• Employed providers 11 11 -

• Other clinical 3 1 2

• Total headcount 109 82 27

Reduction in wage expense

• 2006 2007 Reduction

• Nursing $1,267,000 $1,129,000 $138,000

• Office staff 1,740,000 1,253,000 487,000

• Employed providers 814,000 814,000 -

• Other clinical 93,000 40,000 53,000

• Total wages $3,914,000 $3,236,000 $678,000

Other line items

• Revenue

• Possible increase due to higher coding
• Possible increase due to higher physician productivity
• $0 to $500,000 increase

• Other expenses

• Reduction in telecommunications costs
• Open source PBX and use of cable/ DSL rather than T-1 lines
• $80,000 savings
• Elimination in transcription costs
• $46,000 savings

Revenue

• Increase of 5% in volume of patients seen applicable to all areas (productivity increase)

• Increase of 5% in higher fee-for-service coding (so-called “up coding”

Information systems

• Replace T-1 lines with DSL or cable Internet access

• Implementation of software PBX (private branch exchange) system with Asterisk

• Asterisk

• Open source software
• Widely implemented
• Uses Voice over IP (e.g. Internet and LAN) in place of telephone circuits
• Managed via software rather than hardware

Helpful for me

• Big issues for me are:

• Getting to the right people in a physicians practice
• Chance to clearly explain value of EMR systems

• Specific help

• Referrals to your primary care doctor or the appropriate administrator in the practice

My Information

• Wendell Murray

• Wendell Murray Associates Inc.

• 602 Rosetree Lane

• Kennett Square PA 19348

• Tel: [phone]

• Mobile: [phone]

• E-mail: [e-mail]

• Website: www.wpmassociates.com