Managing Director Jack Langworthy writes weekly commentary on the HCIT and related
sectors in his email, Vital Signs. The following is an excerpt from one of his July emails. To be added to the distribution list, email him at ibankerblog@covllc.com.
“It was the best of times, it was the worst of times” – Tale of Two Cities
We’re happy that the federal government issued meaningful use criteria for hospitals and doctors on July 13. We were a little taken aback that the criteria had been so scaled back primarily by industry/trade group lobbying. The driver for lobbying is to optimize the chance for incentive payments available under the Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) signed into law in 2009.
Source: 1/09 Chilmark Research
The calculations for HITECH Medicaid and Medicare incentive payments to hospitals are complicated. Here’s a good article to wade through describing the methodology:
HITECH incentive payments to hospitals
We don’t think regression analysis capabilities are required to crack the code, but it requires some ciphering along with an ability to add, subtract, multiply, and divide.
There is still the open issue of what it means for an EMR to be “certified” which is the second part of the process toward the promised land of the incentive payment mother lode. Right now we think only Certification Commission for Health Information Technology (CCHIT) has stepped up to apply to be a certifying body, but the Drummond Group was making noises and sending out press releases that they were applying, too. The more the merrier and we expect there to be more.
Drummond Group: we're in it to win it
Back to our concern about the watered down meaningful use criteria. Initially, hospitals and doctors would have had to meet all criteria to qualify for HITECH incentive payment. After “improvements” supported by the respective lobby groups, hospitals and doctors will have to meet a core criteria group and 5 from a list of 10. I expect they’ll all be able to record patient smoking status, record demographic information, list patient medications, and list medication allergies. And these are among the Phase 1 lay-up criteria for hospitals and doctors.
MU - No one said it would be hard
What’s going to happen when the criteria gets tougher as in Phases 2 and 3? Are the vendors which supplied the Phase 1 solutions going to be around when the going gets tougher? Are they going to offer the same relatively meaningless (excuse the pun) “guarantees” as they are doing with Phase 1 when it comes to Phase 2 and Phase 3? If “meaningful use” (MU) criteria drive what it means to be a “certified” EMR, there will be more risk that vendors which provide initial MU functionality won’t be around for the next rounds.
Should anyone care?
We think there’s a good chance that HITECH incentive payments will be paid to docs/hospitals/EPs complying only with the limited stripped down MU Phase 1 criteria. Because almost 70% of the incentive payments for doctors are made in the first 2 of the 5 years ($30K out of $44K), incentive payments may be made to docs/EPs using an EMR system that won’t qualify for Phase 2 or Phase 3 criteria coming in 2013 and 2015, respectively. And once the money’s gone, docs may be looking a spending net dollars to replace their EMR.
It there a safe harbor? Safer, maybe, if not shelter from the storm. But nothing is perfect.
We have spoken to several senior operating executives of 2008 and/or 2011 CCHIT-certified ambulatory EMR companies and they have said that their EMRs already have the functionality in current versions for what they expect to be the Phase 2 MU standards. Further, they don’t think it will be a stretch to meet Phase 3 MU criteria. We expect Phases 2 and 3 MU criteria to be daunting. And we expect that some number of doctors buying EMRs from vendors selling non-2008 or 2011 CCHIT-certified products will be disappointed when their vendors can’t hit Phase 2 or Phase 3 MU criteria and they have to replace systems.
Why do we at Covington care?
We’re investment bankers and don’t really have a dog in this fight. But we specialize in HIT software companies and those companies will have been treated poorly if the time and investment they’ve spent to get CCHIT-certification doesn’t count for anything meaningful (that pun again) under ARRA/HITECH. We think that docs and hospitals should give value to the greater comfort level they should feel in buying the generally more robust and functionally-advanced CCHIT-certified solutions.
As taxpayers (not to get into too much flag-waving), we’ll be sorely irritated if the first 70% of these HITECH payments are out the door and the public doesn’t have much to show for it.
But as bankers there’ll always be opportunities to provide services to both the winners and losers.
We love comments, so don’t be shy.
Jack Langworthy is a Managing Director at Covington Associates. He can be reached at 617-314-3950 or ibankerblog@covllc.com.
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