(Originally posted 11/2/2006 on zachmortensen.net)

This morning Mr. HIStalk ran a very good interview with Jonathan Bush, Chairman and CEO of athenahealth, who seems to be a visionary and articulate executive poised to do great things for the industry. I’ll comment on one of his points in particular:

"Everyone needs to have a service with their EMR that drives integrity. Doctors will be paid for performance – why aren’t vendors willing to go at risk? That makes me a little pissy. We just got legal clearance to charge for athenaClinicals as a percentage of doctors’ claims settled. We don’t charge for the encounter and there’s no upfront fee or flat fee. Originally we had some Stark concerns, but now it’s OK. The administration has done a great job of getting regulatory clutter out of the way for improvement. There is much more long-term benefit than putting a disconnected legacy EMR in every pot."

Kudos to Jonathan and his company for raising this issue in the arena of public debate. I couldn’t agree more with his comment about at-risk payment for healthcare IT vendors. As higher-profile vendors begin offering this type of service contract to providers, the economics of the industry are bound to change for the better, but only if both providers and vendors decide to get on the bus.

I imagine that a "pay-for-performance" trend in EMRs has a better chance of beginning in the ambulatory rather than the acute-care segment. My conjecture is that there has to be some upside for the EMR vendor in an at-risk agreement — a bonus if the vendor exceeds expectations — and as risk-averse as hospitals are, they are likely to opt for a fixed payment even if it is higher than the expected value of the at-risk option. But physician practices are inherently more entrepreneurial, perhaps less risk-averse, and have simpler decision processes so they can make a decision to go at-risk without getting bogged down in a byzantine series of committee meetings.

My experience has been that the stakeholders involved in a decision to purchase a hospital EMR (or any hospital-based clinical information system) rarely if ever view the purchase as an investment that is expected to pay a return. As Jonathan seems to suggest, perhaps this is a matter of the way the industry-leading vendors position their systems, ignoring the ROI issue because they know they are asking a price that far exceeds the measurable value of their product. Still, one can’t help but wonder about the soundness of hospital decision processes that consistently produce one eight-figure IT boondoggle after another, each allegedly following months of "due diligence" on the part of the stakeholders involved.

Another key challenge in an at-risk service agreement is choosing the metric that will measure the vendor’s performance. Revenue seems to be the lowest common denominator, but the pathway from care to dollars is anything but clear, especially in an acute-care setting. Complexity affords opportunities for variance, and I can see how a provider organization could argue that any increase in revenue could be due to any of the multitude of other variables apart from the performance of the vendor’s product or service. Jonathan mentioned that the government has taken important steps to reduce the "regulatory clutter", and I imagine that the more we can simplify the relationship between care and revenue, the more likely an at-risk pricing model will catch on across the entire market.

If Jonathan and athenahealth can begin to make a difference on how the industry views investment in clinical information systems, both the provider and vendor sides of the industry will be better off in the long run as the relationship between the cost and value of healthcare IT becomes more balanced.