Infotech Reshapes Health Care Marketplace

Congress' latest health reform law will accelerate the transformation of the nation's trillion-dollar medical industry as doctors, insurers and hospitals use computers to fight for a greater share of the nation's health-care pie.

Technology "is no longer [simply] able to support business strategy, but [must] drive business strategy" for the health care industry, said Gwendolyn Moore, who runs the health care integration business for Andersen Consulting, Chicago.

Just before it recessed Aug. 2, Congress passed a health-care reform act, which directed the industry and the Department of Health and Human Services to devise by 1999 a set of technical standards and definitions needed to create a nationwide electronic billing network.

The act will help clear confusion caused by the industry's 1,500 different types of billing documents, cutting costs and laying the foundation for greater use of information technology, said Kathleen Frawley, an attorney with the Washington-based American Health Information Management Association. The bill, HR 3103, was sponsored by Sen. Nancy Kassebaum, R-Kan., and Sen. Ted Kennedy, D-Mass.

The immediate savings from simplified billing could be between $4 billion and $10 billion, according to a July 1992 industry report, "Work Group for Electronic Data Interchange," requested by the Secretary of Health and Human Services.

The medical industry spends $10 billion to $15 billion on infotech every year, according to Adams. The total includes roughly $3.1 billion in spending by hospitals -- or roughly 2.4 percent of revenues among the most technology-intensive hospitals -- and $2 billion by doctors, said Ronald Johnson, president of R.L. Johnson &amp Associates, a consulting firm based in Danville, Calif.

Spending levels are growing at roughly 7 percent a year as medical organizations try to combine existing databases and coordinate their operations, said Johnson. Fierce competition among vendors is keeping prices low, curbing overall spending growth, he said.

"We're expecting the growth rate to continue at 15 percent to 20 percent... primarily because the managed-care trends require the replacement" of existing computers, said Duncan James, vice president of marketing at Atlanta-based HBO &amp Co. The company's sales of health-care infotech generated 1995 revenues of $495 million, including $100 million from international sales.

The medical infotech business is dominated by a few companies such as HBO &amp Co. and Shared Medical Systems, Malvern, Pa. The largest threat to these incumbents "would be for a large, non-health-care company to come into the market, such as a large integrator or telephone company," said James. Potential rivals such as Bell Atlantic Corp., Philadelphia, or Electronic Data Systems Corp., Plano, Texas, might ally with insurance companies that are already well-established in the medical sector, he said.

The growth in infotech spending is caused by -- and also causes -- major changes in the medical industry, said industry officials and consultants.

"There is a major shift going on.... We [will] end up with an integrated medical system where for the first time we will be able to have a complete electronic medical record of the patient," so improving the quality of health care, while reducing costs, said Johnson.

The integrated medical industry is being assembled as hospitals, doctors and insurance companies merge into managed-care consortiums, which are held together by data-sharing networks, said Moore. These networks allow the various specialty elements of each consortium to manage the care of patients by tracking their medical records, arranging for payments, monitoring expenses and suggesting possible treatments, she said.

"The boundaries [between organizations] are merging and getting fuzzy," said Moore.

But much of the investment in infotech is also driven by short-term needs, including competition for the pool of health-care dollars.

For example, health-maintenance organizations are building large databases, dubbed data warehouses, to track the medical and spending decisions made by individual doctors within the organization.

These data warehouses help curb money paid to doctors, said one insurance executive.

In response, groups of doctors are developing their own data-bases of medical data to justify their decisions to the HMOs, said Kathy Kenyon, director of legal affairs and business integration for The American Medical Group Association, an Alexandria, Va.-based association of 42,000 doctors.

Because HMOs use their databases to "identify doctors who spend too much money, to get them out [of the HMO]... we're helping our doctors collect [treatment] outcome data so they can say what is clinically justified [and] what works," said Kenyon.

Infotech vendors are eager to help whoever wants to buy their products.

"Our ultimate goal is to provide an intellectual workstation for the practitioner" that includes software to ease bill payments, as well as medical research data to guide doctors' decisions, said Steven Boley, head of software development for Integrated Medical Networks LLC, a 70-person software company based in Irving, Texas.

Hospitals also face similar problems, and have invested heavily in infotech designed to streamline payments. For example, new computer technology has shortened the time taken to process a week's worth of billing information at the University of Pittsburgh's Medical Center in Pittsburgh from seven days to less than three hours, said Jim Davis, project leader for data warehousing at the center.

The technology also helps the hospital extract more money from insurance companies, which can reject incomplete or incorrectly filled out insurance forms, Davis said. Before the new system, "we either had to take the

[insurance companies'] word for it, or dig into piles and piles of paper" to justify the hospital's case, he said.

Insurance companies also want to transmit information directly to their subscribers, avoiding expensive visits to the doctors' offices. For example, U.S. Healthcare, a giant insurance company based in Blue Bell, Pa., and the Johns Hopkins Medical Institutes, Baltimore, recently formed a $25 million consortium called InteliHealth to disseminate health-related information via the World Wide Web to U.S. Healthcare's subscribers.

However, the next generation of medical infotech must improve health-care quality while also cutting costs, said Adams.

For example, hospitals must now shift their investment from payment systems to infotech that can assemble and track patients' medical records and related research data, said Frawley.

"Hospitals have detailed financial systems, but are weak in clinical systems... [so they] don't understand what kinds of patients they are treating," said Frawley.

Organizations that don't assemble systems able to track patient's medical records and suggest cost-effective treatments will lose in the marketplace, said Moore.

Much of the research results and treatment-outcome data needed for tomorrow's quality management systems is being assembled by the government, including the National Center for Health Care Policy and Research, Rockville, Md.

The center has already created a large database, dubbed Conquest, to help industry officials gauge the value of alternative medical treatments.

But at the moment, the infotech vendors lack the data needed for these quality-management systems. "There is very little evidence of what [medical treatment] works and what doesn't work," said Adams.