Transcript The New America Foundation Broadband Forum and Universal

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
80303612
June 25, 2004
1
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
2
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
3
State of the U.S. Health Care System
 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
4
State of the U.S. Health Care System
 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
5
State of U.S. Health Care System
5 Visual Images To Remember
6
High Costs
Health Care Spending Per Capita
US
6.9%
5 Countries
G-7
4.8%
$5,473
$2,876
$2,191
3.1%
1970
1980
1985
1990
1995
1996
1997
1998
2000e
2001e
2002e
Source: Health, United States, 2002
Five Countries: Luxembourg, Canada, Germany, Norway, Switzerland
G-7 Countries: Canada, France, Germany, Italy, Japan, United Kingdom
7
Unnecessary Costs
% of Health Expenditures
Necessary
Cost
30%
Unnecessary
Cost
70%
Project Hope,
Wennberg
et.al., 2003
8
Number of Uninsured
Type of Health Insurance and Coverage
69.6
70.9
Any Private Plan
61.3
62.6
Employment Based
9.3
9.2
Direct-Purchase
25.7
25.3
Any Government Plan
2002
2001
13.4
13.5
Medicare
11.6
11.2
Medicaid
3.5
3.4
Military Health Care
15.2
14.6
Not Covered
0
10
20
30
40
50
Source: U.S. Census Bureau, Current Population Survey, 2002 and 2003
Annual Social and Economic Supplements
60
70
80
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Poor Quality
45%
Right
Wrong
45%
55%
70%
RAND, 2003
“...44,000 to 98,000 deaths...”
- IOM Report: To Err is Human, 1999
“...17 years...”
- IOM Report: Crossing the Quality Chasm, 2000
10
Poor Access to Information
11
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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Why Investing in Healthcare
Information Technology Matters
 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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Why Investing in Healthcare
Information Technology Matters
 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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Why Investing in Healthcare
Information Technology Matters
 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%
15
Why Investing in Healthcare
Information Technology Matters
 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
Financial
Services
11.10%
8.10%
Insurance
IT Investment in
Health Care Very
Low
Consumer
Services
6.50%
Wholesale
Trade
6.40%
Business
Services
5.60%
3.90%
Retail
Healthcare
0.00
%
2.20%
2.00
%
4.00
%
6.00
%
8.00
%
10.00 12.00
%
%
Percent of Revenue for Information Technology 2002
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Where We Stand Today: Why
Investment Has Not Taken Place
Purchase of
Services
Government spends
its health care
dollars elsewhere
364600
Claims
Processing
2216
Bricks and
Mortar
Investment
IT
Investment
1852
100
Federal Spending in Millions, FY 2001, as
reported in Departmental Budgets
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Where We Stand Today: Why
Investment Has Not Taken Place
 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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Where We Stand Today: Why
Investment Has Not Taken Place Barriers To Adoption of IT
 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
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What Needs To Be Funded And What
We Would Hope To Achieve
 Medical Services Area
180
Physicians
2
Hospitals
 Manageable size
 Could be a city, county
 A Community is not
100,000
Population
 Physician Practice
 Hospital
6
Pharmacies
3
Labs
 Integrated Delivery
Network
 County Health
Department
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What Needs to be Funded And What
We Would Hope To Achieve
Patient Data
Couple
Medical
Knowledge
Identify
Patient-Specific
Issues
Communicate Care
Considerations to treating
physician and patient
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What Needs to be Funded And What
We Would Hope To Achieve
Patient Data
Medical
Knowledge
Cost
Information
RX
Lab
Primary
Care
Physicians
Data
Capture
Order Entry/
Decision
Support
Specialist
Hospital
Patient Data
Nursing Home
Private
Public
Background Applications
Clinical Data Sharing
Master Patient Index
Security
Best Practices
System Administration
HomeHealth
Rehab
Patient
Information
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What Needs to be Funded And What
We Would Hope To Achieve
Eliminating High Costs
Treatment
% of Savings Generated
Diagnosis
Redundancy
Errors
Electronic Health Record Clinical Data Sharing
Decision Support Systems
Source: Center for Information Technology Leadership, 2003
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What Needs to be Funded And What
We Would Hope To Achieve
Business Platform Which Shares Costs and Benefits of IT Investment
Others
Providers
89%
Source: Center for Information Technology Leadership, 2003
11%
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What Needs to be Funded And What We
Would Hope To Achieve
Business Platform Which Shares Costs and Benefits of IT Investment
State/Local
10%
Medicaid
17%
21%
Medicare
Source: Health, United States, 2002
Households
26%
22%
Employers
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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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A Proposed Solution:
Creation of an Information Technology
Revolving Loan Fund
• 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
28
A Proposed Solution:
Creation of an Information Technology
Revolving Loan Fund
There is a long
and successful
history of funding
essential
infrastructure
through
Federal/State
Revolving Loan
Programs
Federal Revolving Loan Fund Programs Total
Funding Commitments & Amount of Projects Financed
(Figures are aggregate through June 30, 2002)
Federal Grant
Dollars
State Matching
Funds
Principal Amount of
Projects Financed
$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
Clean Water SRF
(1988 – 2002)
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A Proposed Solution:
Creation of an Information Technology
Revolving Loan Fund
Contributions
Partnership
Cash Flows
Federal/State Contribution
Income
• AHRQ Grants
• Grant Funds
• Agreement with Medicare and
Medicaid Programs
• Lease/Loan/Service Contract
Repayments
• Provision of Federal Bond
Insurance
• Financing Fees
• State Issued Bonds
Tax- exempt or Taxable
• User Fees (where
applicable)
State/Regional
Healthcare Information
Technology Corporations
Expenses
• HITC Operating Expenses
(HITC)
• Repayment of P & I on
Indebtedness
Private Sector
• Sponsorship of Projects and
Obligation to Repay
Indebtedness
Net Cash Flow
HITC Share
• Private Foundation Support
FUNDED PROJECTS
(through loan, leases and service contracts)
"Community"
Sponsored
Projects
Provider
Sponsored
Projects
Government Sector
Share
Payor
Sponsored
Projects
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PROJECT SPONSORS
A Proposed Solution:
Creation of an Information Technology
Revolving Loan Fund
 Through supporting community-wide planning,
provide long term term financing for multistakeholder 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
31
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
32
A Proposed Solution:
Creation of an Information Technology
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 publicprivate partnership program may include a requirement that
Fund administrators put up matching funds equal to up to
20% of the federal contribution
33
A Proposed Solution:
Creation of an Information Technology
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,
34
financial plan preparation and project design