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Stimulus Fuels Gold Rush For Electronic Health Systems

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Editor's note: This story is published in conjunction with American University's Investigative Reporting Workshop.

The government's $45 billion plan to jump-start a national shift to electronic medical records has touched off a gold rush among scores of technology firms - even as many experts question whether the benefits of the products are being oversold.

Federal officials won't decide until early next year which types of systems to certify. But some of the world's largest companies, including General Electric, Microsoft, Dell and German-based Siemens Corp., already are working hard to sign up doctors and hospitals. [See leading players here.]

The potential market is vast: Fewer than one in five of the nation's approximately 600,000 doctors and 5,000 hospitals now use the technology, but by 2015 all are supposed to be keeping their records electronically.

The government's spending, part of the Obama administration's $787 billion economic stimulus, promises to give as much as $44,000 to each doctor to spend on digitizing his or her health records.

"We've got to make sure the products sold are high quality," said Sharona Hoffman, a professor of law and bioethics at Case Western Reserve University School of Law who believes software defects could endanger patients and squander taxpayer dollars.

"Doctors are being sold a bill of goods that this stuff is a miracle," added Scot M. Silverstein of Drexel University, a physician and expert on health information technology. "Drug companies can't say their drug is a magic potion," he said, but the tech firms "can make whatever claims they want."

The competition among companies has spawned a wealth of sales gimmicks. One firm offers a "cash-for-clunkers"-inspired deal that gives doctors $3,000 in rebates if they junk their current system for a new model. Another has announced interest-free loans to doctors that won't come due until their stimulus checks arrive. Even Wal-Mart has begun selling a "turnkey" digital health records system through Sam's Club.

A super group of major tech firms has banded together and hit the road with what they call a "stimulus tour" to boost sales. So far, the tour, which includes officials from Microsoft, Dell and Allscripts-Misys Healthcare Solutions, has played in more than 30 cities. It stops at local convention centers and hotels, where it holds seminars for doctors. Those who attend receive a "customized stimulus analysis of how much money your practice could earn in federal incentives."

The marketing blitz comes amid a simmering debate over how closely government should keep watch over the young, but fast-galloping industry. Officials expect electronic health records to transform the practice of medicine by greatly improving the quality of care and sharply cutting costs

Yet federal officials don't require the same degree of testing, safety inspections or marketing oversight for electronic records systems as for many types of medical devices. While tech firms believe strict regulation of the industry would stifle innovation, critics want to clamp down.

Before spending billions of tax dollars, officials "should at least figure out what works and what doesn't," echoed Evan Steele, who heads a medical software company that sells an electronic records product.

Steele said anyone shopping for a new car can pick up more impartial advice than buyers of electronic medical systems. He wants to see a "lemon law" and report cards for tech firms to protect buyers--and taxpayers--from overzealous marketing.

Accusations of deceptive sales tactics unfolded this past summer in a federal court battle in Philadelphia between two of the industry's biggest players. In the lawsuit, Siemens Medical Solutions accused rival Cerner Corporation of illegally trying to steal its hospital accounts with "false, misleading and completely unsubstantiated claims." Neither party would comment on the lawsuit, which they settled in late September.

The lawsuit centered on a sales campaign launched in April by Cerner Corp., an industry leader, about two months after President Obama signed the stimulus bill. Siemens alleged that Cerner sales teams told hospitals using Siemens equipment that Siemens would fail to qualify for the "maximum" stimulus grants. Cerner said its system would be approved and pitched "attractive payment terms that closely align" with stimulus payments, court records show. [More about the court fight here.]

John Glaser, a special assistant to the U.S. Department of Health and Human Services for health tech issues, would not comment on the issues raised in the lawsuit. But he said the agency expects to begin tracking prices and marketing.

"We're going to look at that," Glaser said in an interview. He also said the agency would "keep eyes open" for any signs of "price gouging" and any marketing abuses tied to the stimulus. He declined to elaborate.

Kent L. Gale, founder of KLAS Enterprises, a Utah-based company that evaluates health tech software, said prices are starting to fall. But he said some firms make overly optimistic claims "to win new business they can't really deliver."

Gail S. Arnett, director of corporate relations for the Healthcare Information and Management Systems Society in Chicago, said the trade association would have no comment for this article.

Enthusiasm for the plan runs deep among key senior Obama administration officials and informal policy advisors, some with ties to big-name health tech concerns. White House health czar Nancy-Ann DeParle, for instance, earned at least $680,000 in compensation and stock options during the seven years she served on Cerner Corporation's board of directors, records show. She resigned from the board on taking the White House post, has sold her stock and does not participate in any matters affecting the firm, government officials said.

While they support the goals of the program, some industry veterans see the stimulus spending as more of a windfall for big technology firms than a sensible use of tax subsidies.

Prices for the systems "are simply too high," asserts Jonathan Bertman, a Rhode Island doctor and founder of a computer health records company that sells a low-cost product mostly to small medical practices. While he expects a boost in sales, Bertman said: "As a taxpayer, I think it is egregious."

Rather than propping up prices with stimulus cash, government should spur innovation and "let prices fall through competition," which would compel vendors of all types and sizes to come up with the best software at the lowest price, Bertman said.

Some medical groups also are upset about high prices, which officials say would cost a solo doctor an average of about $30,000 and a small hospital several million dollars. Service fees and staff training add to the price tag.

Steven E. Waldren, a physician and health tech expert with the American Academy of Family Physicians, said some systems come with $30,000 or more in software licensing fees. That turns off many doctors already uncertain whether they will qualify for the rebates.

"Right now the business model is how many licenses can I sell, not how good a service do I provide," Waldren said. He added that some high-end products offer "a lot of complexity that doesn't need to be there."

David Kibbe, also a physician and an advisor to the family physicians' group, said some smaller companies sell systems that cost thousands of dollars less than offerings sold by many major tech firms. Which types federal officials will certify and what uses doctors must make of them to qualify for the rebates remains unclear. "Anybody who says they know is lying or poorly informed," Kibbe said.

Under the stimulus law, medical offices that buy or update electronic systems can receive up to $44,000 in bonus Medicare payments per doctor over five years, starting in 2011. They can get the money regardless of how much they pay for the unit. Hospitals are eligible for a $2 million bonus payment in the first year, millions more later on.

Congress jolted the market by rewarding doctors and hospitals that jump on board quickly and penalizing those who resist. The faster they get up and running, the more money they can get. On the flip side, Medicare plans to cut payments to those who fail to get wired up by 2015.

"The law is very well crafted," said John D. Halamka of Harvard Medical School, who is vice-chairman of a government advisory panel on health technology standards.

Halamka's advice to doctors and hospitals? Start shopping.

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