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«Business, Transportation & Housing Agency Report of the Health Information Technology Financing Advisory Commission Presented to: Secretary Dale E. ...»

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Business, Transportation & Housing Agency

Report of the

Health Information Technology Financing

Advisory Commission

Presented to:

Secretary Dale E. Bonner

Business Transportation and Housing Agency

Secretary S. Kimberly Belshe

California Health and Human Services Agency

December 2008

Report of the Health Information Technology Financing Advisory Commission

Business, Transportation & Housing Agency │Health & Human Services Agency

Members of the Commission Beth Abbott, Health Access Kimberly Allen, JP Morgan Ann Boynton, (formerly) California Health and Human Services Agency Designee Nathan Brostrom, University of California, Berkeley Vincent Brown, California Department of Finance Designee Darren Dworkin, Cedars-Sinai Jonah Frohlich, California HealthCare Foundation Ken Cohen, San Joaquin County Health Care Services Cindy Ehnes, Department of Managed Health Care Jack Ehnes, California State Teachers’ Retirement System Jarvio Grevious, California Public Employees’ Retirement System Stan Hazelroth, California Infrastructure and Economic Development Bank Steven Henry, UnitedHealth Group/PacifiCare David Link, California Department of Insurance Designee Kathryn Lowell, Business, Transportation and Housing Agency Designee Leslie Kim, M.D., West Bay Orthopedic Group Charles Kennedy, M.D., WellPoint, Inc.

Gerald Kominski, University of California, Los Angeles Matthew Mazdyasni, HealthCare Partners Ralph Silber, Alameda Health Consortium Michael Torgan, Country Villa Health Services Patricia Wynne, Office of the State Treasurer Designee Government Staff Jeff Newman, Staff Development Specialist Business Transportation and Housing Agency Ellen Badley, Assistant Deputy Director, Health Tec

–  –  –

Executive Summary


Overview of the Commission

Research Findings

Findings by Market Segment

Recommended State Actions


Appendices & Endnotes

–  –  –

Executive Summary Purpose of Commission The Health Information Technology Financing Advisory Commission (Commission) was established to determine the extent to which limited access to capital impedes the adoption and implementation of health information technology (health IT) in various health care sectors. The Commission was tasked to provide recommendations for how the state could address these impediments. In addition, the Commission was tasked with surveying sources of funding.

Focus of Commission’s Research and Recommendations1 The Commission developed criteria that identify the health care provider markets

to be included in the research scope. The criteria are listed below:

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Providers were included that:

Have difficulty affording clinical information systems due to lack of financial health, lack of access to capital, an unfavorable financial value proposition, and a low rate of adoption.

Rationale: The overall financial proposition is a barrier to adoption of clinical information systems.

Are likely to use clinical information systems to improve clinical quality.

Rationale: Intervention is likely to improve quality.

Serve patients facing health disparities and the disadvantaged.

Rationale: Intervention is likely to reduce the “digital divide” to ensure that health IT is available to all communities.

This report is based on research performed under contract with the University of California, San Francisco. The full research report can be obtained by contacting Dr. Robert Miller at Robert.Miller@ucsf.edu.

–  –  –

Information provided from the research allowed the Commission to prioritize certain market segments. For instance, organizations that can currently access capital or have already adopted and/or implemented clinical information systems were not included in the research scope. Some health care markets, large health systems and/or plans (Sutter, Catholic Healthcare West, and Kaiser), were excluded from further research early in the process. Based upon the criteria, additional market segments, including large risk-bearing medical groups, as well as solo-small group physicians who are not oriented to serving publicly funded beneficiaries, were also excluded from the research recommendations.

The Commission chose not to address the financing of health information exchange (HIE) architecture or HIE long-term sustainability because the issues are very different than individual provider adoption. Additionally, widespread adoption at the provider level is a precursor to fully realizing the broader value of HIE.

Capital Access Needs by Market Segment University of California, San Francisco (UCSF) economist Bob Miller, Ph.D., researched capital access needs by health care provider market segments. The table in Figure 1, on the following page, represents the capital access needs by health care market in California, and an estimated capital requirement for clinical information systems (CIS) in California.

–  –  –

Community Health Centers

Public Hospitals

Unaffiliated Rural Hospitals

Solo/small groups, Medi-Cal oriented..... $140 - $440 million Total Capital Requirement

Miller, Robert. Professor of Health Economics, UCSF, San Francisco, CA.

*Please note that in discussions of the financial need for each market segment, the dollar figure covers the implementation of CIS for a seven-year period.

This broad range of need, spanning several health care markets, indicated to the Commission that solutions, in the form of recommendations to the Schwarzenegger Administration, were necessary.

Principles Guiding Recommendations The Commission used the following principles to guide the development of its final recommendations for this report. The guiding principles for the Commission’s

recommendations are as follows:

• Near-term recommendations must be budget neutral.

• Mid- and long-term recommendations must be sustainable and result in more efficient health care expenditures.

• Investment strategies should prioritize options for providers that serve publicly-funded programs and for whom adoption is unlikely to occur absent policy intervention.

• All investment strategies must accrue a public benefit.

• Strategies should support investment into interoperable, certified CIS that result in quality improvement (QI) and efficiency gains.

• All recommendations should clearly outline state involvement and action.

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Commission Recommendations Members of the commission developed a total of 17 recommendations. The five recommendations that received the greatest level of support among the members are listed below. The complete list of recommendations is contained in the body of the report. In some cases, the recommendations are intentionally broad to allow for maximum implementation flexibility.

Recommendations fell into the following defined time frames:

Near-Term: The recommendation can be initiated within two years.

Mid-Term: The recommendation is likely to begin after two years and be accomplished thereafter.

Long-Term: The recommendation requires building blocks to implement, and these building blocks would be initiated in the next several years.

Recommended Priority State Actions Create a public-private partnership to consolidate future public and private health IT resources (dollars and expertise) and coordinate grants and loans. (Near-Term) Finance electronic health records (EHR) through mediumterm financing, rather than the more typical short-term CIS loans, consider ways to finance “operating” losses that are a continuation of the original EHR investment, investigate ways to reduce transaction costs through alternative loan programs; and determine the feasibility of the California Health Facilities Financing Authority issuing bonds for this financing. (Near-Term)

–  –  –

Encourage publicly funded programs to consider demonstration projects that incorporate new reimbursement models requiring effective use of health IT (e.g., investigate Medi-Cal pay-for-performance, fee-for-service incentives for medical homes services). (Long-Term)

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Background Health care is one of the last “cottage industries,” one in which delivery is both highly individualized and inconsistent in quality. These two properties of health care stem from the specialized knowledge of physicians and the autonomy with which they practice. In 2001, the Institute of Medicine reported that scientific knowledge about best care is applied neither systemically nor expeditiously to clinical practice. Further, it takes an average of 17 years for new knowledge generated by randomized controlled trials to be incorporated into clinical practice.2 The variability in care delivery results in both under-treatment (care that should have been delivered, but was not) and over-treatment (care that was provided, but had little-to-marginal effectiveness).3 The highly fragmented delivery system does not make available the integrated data needed by many providers to allow for optimal care delivery. In the current system of largely paper records, information that would improve care is locked in silos among various providers.

Health IT holds great promise for addressing this gap through automation of manual processes, knowledge discovery in data warehouses, and information sharing across provider sites. Applications that support improved care delivery include electronic medical records (EMR), computerized order entry (CPOE), electronic prescribing, and decision support systems.

However, the health care industry lags significantly in its adoption of and investment in sophisticated information systems. Health care only invests two percent of its revenues into IT, while other industries invest an average of ten percent. This delay in integrating IT into the delivery system can be attributed both to uncertainty about obsolescence, due in part to a lack of national standards for data exchange, as well as a lack or misalignment of market incentives for providers to adopt technology.

Implementing Electronic Health Records (EHR) and related information systems requires a transformation in the way care is delivered. Of significant concern to policy makers is the possibility that costs and other implementation complexities will result in “haves” and “have-nots” that disadvantage vulnerable populations who rely upon safety net providers and public programs for their health care.

The character of the health care marketplace creates barriers to financing and implementation. Many individual physicians, clinics, practice groups, and smaller hospitals may lack the necessary capital to deploy integrated IT systems. In addition to the cost for hardware and software (estimated at about $24,000 per physician), there is an even greater cost in decreased productivity during Report Brief: Crossing the Quality Chasm: A New System for the 21st Century, Institute of Medicine website accessed July 2008, www.iom.edu.

McGlynn, Asch, Adams, et al. The Quality of Health Care Delivered to Adults in the United States. New England Journal of Medicine, June 26, 2003, p. 348.

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implementation, system retooling, and training necessary to optimize the investment.

California is unique in the nation in the high penetration of managed care and in the use of large integrated medical groups and independent practice associations (IPAs) that deliver care to nearly 16 million patients - approximately half of the insured population. These organizations which assume financial risk for delivery of care are uniquely positioned to take advantage of the benefits of health IT through better care coordination and cost avoidance. These groups increasingly see adoption of health IT as a cost of doing business and a competitive requirement.

Recent data published by the California Health Care Foundation4 shows that California leads the rest of the nation in the percentage of physicians reporting that they use EHRs -- 37 percent compared to 28 percent nationwide. This is reflective of a very high percentage of Kaiser physicians who use EHRs as well as more than half the physicians in large practices who use EHRs. In contrast, more than half of solo physicians and nearly half of physicians in small/medium group practice do not plan to implement or use EHRs in the next year.

However, the need and opportunity for access to capital is not well understood. A detailed market study was required to identify a variety of approaches to deploy capital resources to various health care sectors. As such, the Commission needed to identify which health care markets and the extent to which they are impacted by limited access to capital.

There are a number of proposed approaches that could shape the state’s role in addressing the barriers to broad health IT adoption. As a major purchaser of health care services for California residents, the state has an interest in achieving greater quality and efficiency of care. The state also has an interest in ensuring the adoption of health IT for the public good. To the degree that market incentives are misaligned between payers and providers to achieve widespread adoption, the state may see the need for intervention or other market incentives.

Snapshot “The State of Health Information Technology in California”, CHCF website accessed in April 2008, www.chcf.org

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Overview of the Commission Membership The Commission was comprised of 27 individuals who were representative of the

following categories of members:

• Secretary, Health and Human Services Agency, Co-Chair

• Secretary, Business, Transportation and Housing Agency, Co-Chair

• Treasurer, State of California

• Commissioner of Insurance

• Director, Department of Finance

• Director, Department of Managed Health Care

• Representative, CalPERS

• Representative, CalSTRS

• Executive Officer, Infrastructure Bank

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