July 2013

HIEs Walk Funding Tightrope
By Mike Bassett
For The Record
Vol. 25 No. 10 P. 22

Without federal dollars, the future of health information exchange hangs in the balance.

Earlier this year, media reports suggested that an ambitious effort by the Metropolitan Chicago Healthcare Council to launch a Chicago-area HIE was in trouble. The problem, according to an article in Crain’s Chicago Business, is that some health care organizations are reluctant to participate because of cost concerns and questions about how much value the HIE will actually provide.

While project officials are adamant that the HIE will roll out later this year, the story serves as a reminder that while these exchanges are growing in number, there are no guarantees they will ultimately be successful.

The question of financial sustainability is the leading factor in determining an HIE’s chances for long-term success. According to the “2012 Report on Health Information Exchange” by the eHealth Initiative, of the 161 organizations surveyed, 116 reported that sustainability continues to be a “moderate or substantial challenge.”

The passage of the HITECH Act provided billions of dollars in financial incentives and implementation support with the goal of significantly increasing the speed of adoption and the meaningful use of both EHRs and HIEs. According to KLAS Research, as of 2011, there were more than 225 public and private HIE initiatives in the United States, a marked increase from previous years. The number of private HIEs increased from 62 in 2009 to 161 in 2011, while the total of public exchanges increased from 37 to 67 over the same time period.

However, according to “Following the NeHC HIE Roadmap: Four Routes to Success,” a report issued by the National eHealth Collaborative (NeHC), because many of these exchanges received most of their revenue from grants—funding that disappeared as of late April—a large number are not financially sustainable.

This could be a signal that many HIEs are on shaky financial footing. “I don’t think it’s an outrageous statement to suggest that you can look at the ONC [Office of the National Coordinator for Health Information Technology]-funded state HIEs and say that in three to five years maybe a third of them will still be here,” says NeHC CEO Kate Berry. “But there are certainly plenty of examples of HIEs achieving or approaching financial sustainability, so it’s not a universal problem, but it is a challenge.”

What Drives Sustainability?
In putting together the NeHC report, a sustainability workgroup collected and analyzed data from 16 existing HIEs to come up with an aggregate financial statement indicating what it takes for HIEs to be financially solvent. According to Berry, it also identified where the gaps are between unprofitable and profitable exchanges.

One factor, Berry says, appears to be that some HIEs price their products and services too low, “which may be a result of their governance structure.” For example, an HIE could have representatives on its governing board who are from hospitals that are being asked to fund the HIE by paying fees for services. “But at the same time, the hospital may, in the short term, be losing revenue because the HIE has been successful in reducing emergency department admissions,” she notes. “So there could be some inherent pressures HIEs are under to lowball the pricing of its products and services.”

In any event, there does appear to be a large price discrepancy across markets, she says. This could be the result of the governance model or any number of other factors, including pricing strategies and market competition. It does, however, indicate the market is price elastic, meaning similar customers from different markets are willing to pay higher prices for similar products. “It comes down to developing the products and services the market wants and pricing them appropriately so you can cover expenses and investment in new product development and growth,” Berry says.

The latter point is critical, she says, because HIEs must successfully invest in new products, “which is an important driver of success. A key lesson here is that you do need to invest in product development, and those HIEs who got grant funding and other subsidies seem to be the ones that have been the most successful in the development of new products and services to go to market with.”
According to the NeHC report, the average profitable HIE was able to invest $7.1 million in grants into product development compared with the average unprofitable HIE that was able to invest only $1.3 million.

“The potential impact of the 433% difference in revenue from grants between the average profitable and unprofitable HIEs cannot be overstated,” the report said. “The disparity between the two groups suggests that over three or four years (often the length of a typical grant), the average HIE in the profitable group could have invested $21 million to $28 million in product development, while the average HIE in the unprofitable group might have been able to invest only $4 million to $5 million—a striking difference.”

The report went on to suggest that this contradicts a common assumption that sustainability may be HIE age related, and instead means that it is more a reflection of the amount of money invested and the development of new products over the HIE’s life.

The fact that financial support in the form of grants is no longer an option means the definition of HIE success must incorporate the ability to survive without grants, says Richard Swafford, PhD, executive director of the Inland Empire Health Information Exchange (IEHIE) in California. “When you talk about HIE success, it’s not the number of participants you have; it should be measured according to sustainability and the ability to maintain the HIE environment without living off grants,” he says. “While we do get grants from time to time, our structure is entirely fee based, so we’ve been sustainable based on our ongoing fee structure. I think that’s a key to success for all HIEs.”

The IEHIE actually is a bit of an experiment since it’s a public/private hybrid in the sense that it combines public and private exchanges. It was founded in 2009 as a public HIE by the county medical societies of San Bernardino and Riverside and the Hospital Association of Southern California.

“We realized early on that sustainability is really about growth and expansion, and that there were a lot of enterprises out there—not superlarge but not small either—that need an HIE internally for their organization, particularly to connect to multiple hospitals or providers in their system,” Swafford says.

The IEHIE targeted these health care systems, using what Swafford calls an “extraordinarily powerful” technological platform (provided by HIE vendor Orion Health) to provide connectivity to a larger community while maintaining private HIE services within their organizations. “I have to say that by being flexible and willing to see beyond the traditional delivery of services, we’ve been able to grow and expand and maintain ongoing sustainability,” he says, adding that the IEHIE’s experience can serve as a model for some HIEs.

“I don’t want to give away the farm, but I think it’s a model that can be replicated,” Swafford says. “On the other hand, I don’t know if it can work the other way around. I’ve seen a lot of large systems try to push their private HIE into the public space, and that doesn’t seem to work too well.”

While the term “sustainable” should be part of a definition of success, there’s more to it than that, according to Kim Pemble, MS, CPHIMS, executive director of the Wisconsin Health Information Exchange, who says a thriving HIE provides measurable value that its participating stakeholders are willing to pay for.

“And I believe that value needs to go beyond the focus that many organizations have of enabling eligible providers to become meaningful users,” he says. “We need to shoot beyond that and think in terms of what the initiatives are in a community that an HIE can help enable. I’m not leading with technology as the solution. I’m leading with the community challenge, and technology becomes the enabling element.”

The question of what makes an HIE successful is not cut-and-dried and encompasses many factors, says Holt Anderson, executive director of the North Carolina Healthcare Information and Communications Alliance. At some point, the concept may have veered slightly off course, he says, questioning whether “we’ve got lost in the technology aspects and put that first, all without building the rationale and business case for why we’re doing it in the first place.”

After all, he notes, the idea behind HIEs is all about getting information to clinical decision makers at the point of care in as accurate and complete manner as possible.

Barriers and Challenges
While issues related to financial sustainability remain a key challenge for HIEs, there are other barriers that need to be cleared as well.

In the eHealth Initiative survey, more than 100 respondents cited privacy concerns as a hurdle. “Setting up policies regarding privacy and consent, and opt in and opt out, are big issues,” says Swetha Kannan, director of global management services at Orion Health. “What’s the process going to be around that? What are you going to do when patients walk in and they don’t want their longitudinal patient record viewed by other people?”

There’s also the matter of reaching agreement among the HIE’s constituents. “Trying to get several different health care providers across a health information exchange to actually come together to agree and find a consensus [regarding these policies] becomes quite a big issue,” Kannan says.

Competition has emerged as an issue that may significantly impact HIE participation rates. For example, competition from HIT system vendors and other HIE efforts were cited as challenges by 68 and 63 respondents, respectively.

Berry says the trend toward consolidation throughout health care “creates some new competitive dynamics that are changing the game a bit,” even in communities that may sport HIEs with long records of success. In these cases, a hospital exchanging information with the regional HIE may be acquired by a larger organization and subsequently change its strategy and pull away from the local exchange.

“With all this consolidation, there is an increasing level of competition that is changing the dynamic for past successful exchanges,” Berry says. “There is also a concern with the trend toward accountable care and a fear that it will create less sharing among the competing accountable care organizations.”

Kannan points out that one of the biggest barriers to successful adoption is health care organizations that have multiple systems going live at the same time. “You not only have the health information exchange going live, but maybe you’ll have an electronic health record, radiology interface system, and a pharmacological system going in,” she says. “And those will tend to take priority.”

Berry says another challenge revolves around the ability of technology vendors to support interoperability and their flexibility—or lack thereof—when it comes to offering solutions to HIEs. “We hear that the trend is toward needing to have those vendors provide a real flexible approach,” she says.

Not all organizations within an exchange are in the same place or phase as far as how they are utilizing technology, Berry says. “So an HIE needs to be able to offer a menu of options from a technology standpoint that can meet the organizations where they are,” she says. “Not all technology vendors have the kind of flexibility that various provider organizations can pick what they need—and that affects the costs of enabling the exchange.”

— Mike Bassett is a freelance writer based in Holliston, Massachusetts.