1 21st century health care: the information technology impact on the quality and cost effectiveness...

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21st Century Health Care: The Information Technology Impact on the Quality and Cost Effectiveness of

Health Care

William S. Bernstein, Esq.Co-Chair, Government and Regulatory Division

Manatt, Phelps & Phillips, LLP

June 25, 200480303612

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Table of Contents

State of U.S. Health Care System Why Investing in Health Information

Technology Matters Where We Stand Today: Why Investment Has

Not Taken Place What Needs To Be Funded and What We

Would Hope to Achieve A Proposed Solution: Creation of a Healthcare

Information Technology Revolving Loan Fund Program

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State of the U.S. Health Care System

Changing Demographics: Americans age 65+ will increase from 12% of population in 1997 to 20% of population in 2040

Rising Health Care Costs: Premiums increased 12.7% in 2002, 8 times the general rate of inflation and are likely to be higher this year

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Healthcare Professionals In Crisis: Physicians leaving practice as a result of rising malpractice costs; Shortfall of 400,000 nurses nationwide

Persistent Problems of Uninsured Continue: Approximately 15.2% of all Americans lack insurance coverage

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Enormous Quality and Safety Issues Plague U.S. Health Care System Unacceptable Rate of Practice Variations leading to

$450 billion in unnecessary spending according to one recent study

• Staggering number of preventable medical errors kill more people annually than motor vehicle accidents or breast cancer

• Adverse drug events in 5% to 18% of ambulatory patients

• 17 years for new knowledge generated by randomized controlled trials to be incorporated into practice

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State of U.S. Health Care System

5 Visual Images To Remember

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1970 1980 1985 1990 1995 1996 1997 1998 2000e 2001e 2002e

High Costs

Health Care Spending Per Capita

Source: Health, United States, 2002Five Countries: Luxembourg, Canada, Germany, Norway, SwitzerlandG-7 Countries: Canada, France, Germany, Italy, Japan, United Kingdom

US $5,473

5 Countries $2,876

G-7 $2,191

6.9%

4.8%

3.1%

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Unnecessary Costs

% of Health Expenditures

Unnecessary Cost

Necessary Cost

70%

30%

Project Hope, Wennberg et.al., 2003

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Number of Uninsured

Type of Health Insurance and Coverage

14.6

3.4

11.2

13.5

25.3

9.2

62.6

70.9

15.2

3.5

11.6

13.4

25.7

9.3

61.3

69.6

0 10 20 30 40 50 60 70 80

Not Covered

Military Health Care

Medicaid

Medicare

Any Government Plan

Direct-Purchase

Employment Based

Any Private Plan

20022001

Source: U.S. Census Bureau, Current Population Survey, 2002 and 2003 Annual Social and Economic Supplements

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Poor Quality

WrongRight

70%

45%

45%

55%

“...44,000 to 98,000 deaths...” - IOM Report: To Err is Human, 1999

“...17 years...” - IOM Report: Crossing the Quality Chasm, 2000

RAND, 2003

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Poor Access to Information

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Why Investing in Healthcare Information Technology Matters

Evidence Shows Investment Can: Save Money Improve Quality Thereby, allowing for expansion of coverage to the

uninsured Saving Money

The Institute of Medicine estimates that medical errors cost the Nation $37.6 billion each year; about $17 billion of those costs are associated with preventable errors

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October, 2003 GAO Report found that the 10 health care delivery organizations reported 13 examples of cost savings resulting from the use of IT, including reduction of costs associated with medication errors, communication and documentation of clinical care and test results, staffing and paper storage, and processing of information.

Center for Information Technology Leadership study indicated $44 billion in savings (prevention of more than 2 million adverse drug events and 190,000 hospitalization per year) could be realized from adoption of Computerized Physician Order Entry (CPOE) in an ambulatory care environment

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New England Healthcare EDI Network has resulted in substantial administrative savings for both payors and providers alike - - i.e. Cost of eligibility check reduced from $4.74 to 15 cents

A recent cost benefit analysis of electronic medical record systems showed that their use by primary care providers could result in $86,000 in savings over 5 years. Benefits include: reduced drug spending, reductions in radiology, and decreased billing errors.

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Improving Quality At Brigham & Women’s Hospital, Computerized

Physician Order Entry reduced error rates by 55% - from 10.7 to 4.9 per 1000 patient days

A recent study of intensive care patients by Kaiser Permanente found that when physicians used a computerized system, the incidents of allergic drug reactions and excessive drug dosages dropped by 75%; the average time spent in the unit dropped by 4.9 days to 2.7, slashing costs by 25%

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Harris Interactive & Boston Consulting Group Poll 36% physicians said e-prescribing improving

efficiency

45% physicians said e-prescribing improves compliance with formularies

33% physicians said e-prescribing has a major impact on quality of care

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Where We Stand Today: Why Investment Has Not Taken Place

IT Investment in Health Care Very Low

2.20%

3.90%

5.60%

6.40%

6.50%

8.10%

11.10%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Healthcare

Retail

BusinessServices

WholesaleTrade

ConsumerServices

Insurance

FinancialServices

Percent of Revenue for Information Technology 2002

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Government spends its health care dollars elsewhere

ITInvestment

Bricks andMortar

Investment

ClaimsProcessing

Purchase ofServices

Federal Spending in Millions, FY 2001, asreported in Departmental Budgets

100

1852

2216

364600

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The Result is Not Surprising More than 90% of an estimated 30 billion health care

transactions each year are conducted by phone, fax or mail

Less than 5% of physicians use electronic health records

According to a recent JAMA study, only 9% of medical decisions are rated as “informed decisions.”

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STANDARDS: Lack of adoption of interoperable systems and data standards

LEADERSHIP: At the national level, at the community level, within provider institutions and clinician practices

FUNDING AND BUSINESS MODEL: Misalignment of incentives among those who pay for IT and those who benefit from it. Lack of upfront and ongoing operating capital for investment in IT infrastructure

WORKFLOW ISSUES: Organizational change issues

Barriers To Adoption of IT

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What Needs To Be Funded And What We Would Hope To

Achieve Medical Services Area

Manageable size

Could be a city, county

A Community is not Physician Practice

Hospital

Integrated Delivery Network

County Health Department

100,000Population

2Hospitals

180Physician

s

6Pharmaci

es

3Labs

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What Needs to be Funded And What We Would Hope To

Achieve

Patient DataCouple Medical

Knowledge

Identify Patient-Specific

Issues

Communicate Care Considerations to

treating physician and patient

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Achieve

Patient DataMedical

KnowledgeCost

Information

Data Capture

PrimaryCare

Physicians

Background ApplicationsClinical Data SharingMaster Patient Index

SecurityBest Practices

System Administration

Private

Public

Lab

Specialist

PatientInformation

RX

Hospital

Nursing Home

HomeHealth

Rehab

Order Entry/Decision Support Patient Data

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Achieve

Electronic Health RecordClinical Data Sharing Decision Support Systems

% of Savings Generated

Treatment

Diagnosis

Redundancy

Errors

Source: Center for Information Technology Leadership, 2003

Eliminating High Costs

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AchieveBusiness Platform Which Shares Costs and Benefits of IT Investment

11%89%

Others Providers

Source: Center for Information Technology Leadership, 2003

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22%21%

17%

10%

26%Medicaid

MedicareEmployer

s

Households

State/Local

Source: Health, United States, 2002

What Needs to be Funded And What We Would Hope To Achieve

Business Platform Which Shares Costs and Benefits of IT Investment

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A Proposed Solution: Creation of an Information

Technology Revolving Loan Fund

The Government can best achieve its objectives with respect to healthcare information technology investment through a public-private partnership model [the “PPP Model”] Key characteristics of public-private partnerships

include:

• Compelling public policy need for investment;• Recognition that investment either would not happen,

or would happen at an unacceptable cost or timeframe, without creation of the PPP;

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• Structure which enables government to reduce its costs while at the same time improving the level of quality of services to the public;

• Economic platform which is “financially free-standing” allowing projects to be privately financed and operated based on revenues received for the delivery of goods and services

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There is a long and successful history of funding essential infrastructure through Federal/State Revolving Loan Programs

Federal GrantDollars

State MatchingFunds

Principal Amount ofProjects Financed

Clean Water SRF(1988 – 2002)

$19.54 billion $4.16 billion $35.49 billion

Drinking Water SRF(1997 – 2002)

$4.37 billion $1.02 billion $7.08 billion

State Infrastructure(1995 – 2002)

$2.8 billion Varies by State $4.06 billion

Federal Revolving Loan Fund Programs TotalFunding Commitments & Amount of Projects Financed

(Figures are aggregate through June 30, 2002)

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Technology Revolving Loan Fund Contributions Partnership Cash FlowsFederal/State Contribution

• AHRQ Grants

• Agreement with Medicare and Medicaid Programs

• Provision of Federal Bond Insurance

• State Issued Bonds Tax- exempt or Taxable

State/RegionalHealthcare Information

Technology Corporations

(HITC)

Income

• Grant Funds

• Lease/Loan/Service Contract Repayments

• Financing Fees

• User Fees (where applicable)

Expenses

• HITC Operating Expenses

• Repayment of P & I on Indebtedness

Net Cash Flow

Private Sector

• Sponsorship of Projects and Obligation to Repay Indebtedness

• Private Foundation SupportHITC Share

Government Sector Share

F U N DED P RO J ECT S( through loan, leases and se rvice contracts)

"Com m unity"Sponso red

P ro jects

P roviderSponso red

P ro jects

P ayorSponso red

P ro jects

PROJECT SPONSORS

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Through supporting community-wide planning, provide long term term financing for multi-stakeholder projects that invest in information technology for the purpose of promoting good quality and efficient healthcare

Ingredients to Success Multi-Stakeholder Participation Information Technology Clinical Best Practices/Process Improvement Physician Adoption Alignment of Financial Incentives Between Purchasers

and Providers of Care

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A Proposed Solution: Creation of an Information Technology

Revolving Loan Fund

Key Structural Features Federal/State funds used to create Revolving Loan Fund

program which supports healthcare IT infrastructure projects

Initial funding could come from allocation of dollars used in connection with administration of Medicare and Medicaid programs

Federal government provides qualified projects with insurance allowing for low borrowing rates. Initial funding by Medicare and Medicaid programs can be leveraged to create larger capital financing program

State government issue tax-exempt and taxable bonds to fund qualified projects

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Revolving Loan Fund

Project sponsors obligated to repay project indebtedness. Funds collected in excess of funds required to repay debt service used to fund additional projects

Project sponsors obligated to pay financing fees which fund operations of administration of program by not-for-profits, Healthcare Information Technology Corporations, the Boards of which consist of private citizens and government appointed designees

Based on other RLF programs, other features of the public-private partnership program may include a requirement that Fund administrators put up matching funds equal to up to 20% of the federal contribution

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Revolving Loan Fund

Broad enabling legislation ensuring:• Federal funding of corpus of loan funds to be administered by

HITCs; and• Project selection authority which allows for meeting of needs

of local communities, while at the same time ensuring compliance with Federal standards; and

• Provision of a wide selection of credit facilities to eligible projects, including low or no interest loans, credit enhancements, such as lines of credit and payment guarantees, subordinated loans, risk pooling and extended repayment schedules; and

• Grants for safety net facilities and rural health providers; and• The authority to provide technical assistance to eligible

projects, including assistance with the funding applications, financial plan preparation and project design

1 21st century health care: the information technology impact on the quality and cost effectiveness...

Documents

century health care

rising health care costs

information technology

documentation of clinical

processing of information

unnecessary costs

reduction of costs

iom report