The EHR Market and Biology 101

In freshman biology lab, I had to conduct the classic bacterial growth experiment.   The experiment measures how bacterial cultures respond when nutrients are introduced into their environment.   Colony growth exhibits a well-defined pattern of four distinct phases starting with a lag phase, followed by exponential growth, then a stationary period where growth stagnates, and finally a death phase as the nutrient supply is exhausted.  The standard growth curve appears below.

Image courtesy of Martin Harper, “Bacterial Growth”, Wikipedia

The more I think about the potential effects of the EHR incentive program, the more I wonder if I am seeing the HIT equivalent of the biology 101 experiment.

The initial conditions seem to be similar.  There is a viable ambulatory EHR market consisting of mostly small companies in equilibrium with a slow-growing customer base (A).    These companies have evolved  in conformance with the realities of the market: low debt, small technical and administrative staffs, and R&D practices adapted to their customers’ manifest needs.   They are suited to a relatively nutrient-poor environment.

EHR incentives enrich the environment (B), increasing the colony count with new vendors.  Next, the competition for dollars and customers (and perhaps technical talent) increases, resulting in stagnant vendor growth (C).   Eventually, someone has to go (D).  So how will this all play out in 2015 when incentive funds begin to disappear?  It’s fun to speculate, so here goes nothing…

The next 30 months could take on a boom-or-bust flavor for vendors. Considering the large number of EHR companies and the limited supply of eligible professionals (EPs), it seems reasonable to assume that companies that have not staked out a sustainable client base by 2015 may go bust when Medicare funds disappear. (For providers, the Medicaid incentive program is more carrot and less stick in comparison to Medicare, so the sense of urgency for EHR adoption should slow once Medicare incentives end, barring any unforeseen market factors.)

Over this same period, vendors have to focus on evolving certification requirements, additional MU criteria, and improving usability.  Competition for developers and implementation talent may prove to be a key factor in crowning winners.  Since personnel must be hired and trained prior to sales occurring, companies may go into debt in anticipation of revenues that never appear.  Smaller companies may lose their protective leanness because they need to add staff simply to keep up with MU and certification needs. Perhaps a good strategy for small EHR vendors that were doing well before HITECH would be to focus on minimizing growth and controlling costs while waiting for newcomers to die off.

Regional Extension Centers
Will RECs survive the end of the Medicare incentive program? Once Medicare EPs implement systems, retire, or accept the penalties, will the number of remaining Medicaid EPs without EHRs be sufficient to justify the on-going existence of RECs?

HIT Workforce
Newly-minted EHR implementation specialists must fit somewhere in this equation. They might lower the cost of implementation talent, which would be great for the staffing needs of RECs and EHR vendors.  However, they could just as easily set up shop as consultants, charge prices that undercut current consulting companies, and perhaps hasten the demise of RECs.   Of course, should Stage D of the experiment actually occur, the result might be a number of layoffs with HIT workers bemoaning their career choices.

Disruptive Entries
One intriguing aspect of the EHR market dynamic is the possibility of an EHR equivalent of the iPhone — an entry into the market that no one anticipates, and which changes the market’s character and focus.   While current vendors are wrestling with legacy code in order to get their systems to match evolving MU features and changing certification requirements, new entrants will not be similarly hampered.  Instead, they will be  free to take advantage of technology improvements, quietly using the time from now until 2015 to create truly modern EHRs with no legacy debts to pay.

Hard problems, such as decision support, integrated workflow engines, and interoperability, are easier to tackle when starting from scratch.   Likewise,  the data models and coding schemes required to support MU reporting are easier to build from scratch than to retrofit.   This may be the rare case in which late-comers have an advantage.    A new product that can demonstrate ease of implementation and reliable, reproducible gains in productivity for any arbitrary clinician will have an immediate market advantage.    Significantly better products usually win.

The EHR incentive program is a fascinating experiment in healthcare delivery and process improvement. Like the bacterial growth experiment, it seems that we will not have to wait very long to learn the outcome.  I am betting my money that within five years, what is considered an EHR will be vastly different from current systems.   Who knew that freshman bio would be so useful?

What If EHRs Were More Like Content Management Systems?
Rethinking the Design of Electronic Health Record Systems
EHR Adoption and the Law of Unintended Consequences



1 Comment

  1. Thanks Chuck. It struck me as a good way to convey some of the possible effects of the incentive programs.

    I am not on Twitter yet, though I plan to create a Twitter account in a few months, once I am further along with expanding EHR Science. Thanks for tweeting the post.

    Glad to add your blog to the blog roll, it is very informative!


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