December 19, 2011

Survivor: HIM Edition
By Dale Kivi, MBA
For The Record
Vol. 23 No. 23 P. 20

Service and technology vendors along with private practices are competing for their very existence.

Talk to any HIM service or technology vendor, and you’re bound to hear the same story. Over the past few years, unless you are offering a certified EHR or a path toward ICD-10, HIM directors and clinic practice managers simply have no interest in hearing what you have to say. These dual government mandates are all consuming and make preparations for Y2K seem like a walk in the park.

The majority of vendors not offering either of these products have endured a long stretch of extremely flat sales, with many seeing their businesses shrink dramatically. Even long-standing, loyal clients have made the move to firms offering broader-based functionality that includes niche activities traditionally reserved for specialty vendors. Consequently, those who are able to bring such extended end-to-end solutions to the table are in land-grab mode, trying hard to displace the specialty vendors that do business with their existing clients while at the same time leveraging their one-stop-shop portfolios to provider organizations that have grown weary of juggling multiple vendors for different stages of the clinical documentation process.

This shift to single end-to-end technology solution preferences is forcing non-EHR/ICD-10 vendors to either dramatically expand their offerings, sell out while they can, or in some cases, simply go out of business. The upheaval has been especially evident in the dictation/transcription arena, where major players such as Spheris, Webmedx, and M*Modal are no longer independent industry leaders. Just as with respected regional-type players such as AllType , ExecuScribe, and Expert Medical Transcription, they’ve been acquired over the past few months by industry heavyweights trying their best to convince the remaining transcription market players that they are the only ones capable of surviving such dramatic market changes.

And vendor sell-offs were not the only changes during 2011 that promise to permanently alter the HIM market. Provider organizations are also consolidating at never-before-seen rates. Formerly independent clinics are climbing on the bandwagon of what could best be described as a national going-out-of-business sale and affiliating with nationwide chains or financially sound regional independent delivery networks. When such practice consolidations occur, back-office HIM service and technology consolidations soon follow, putting even greater pressure on the local and regional vendors that traditionally serve those clients. Make no mistake: Previously healthy independent vendors and practices are disappearing at an alarming rate driven by the government’s mandate for certified EHRs and ICD-10.

Be a Player—or You’re Out of the Game
For the most part, consolidations in the vendor community have occurred following major revenue losses by the selling company, either from losing business to lower-priced competitors or EHR technology (especially through hospital users). In the case of technology vendors, it’s been lost revenue from the acquisition of their largest service vendor clients.

Some industry insiders attribute these sell-offs to the inevitable consolidation of an industry known for supporting hundreds of vendors. Others think that given the flat organic sales across the board, larger firms have to be aggressive buyers because there’s no other way for them to maintain top-notch revenue numbers and meet investor expectations. Given their heavy losses, especially on the hospital side where decision makers have been the first to displace large transcription volumes with automated EHR clinical documentation, they are left with no choice but to acquire or expire.

The motivation behind massive sell-offs in the clinical practice community is easier to diagnose. Private practices aren’t known for making large IT investments let alone having the internal IT horsepower to manage such changes under government-mandated timelines. Instead of risking their personal capital for an ARRA payoff that, in the end, could very well cost them more than it returns, it’s much safer for them to hitch their wagon to someone willing to assume the complete financial risk, manage the transition, and give them a nice check up front. After that, they can get back to practicing medicine and leave behind the headaches of being small business owners.

As more independent businesses cash out, will niche vendors and independent practices be able to survive? Since necessity is the mother of invention, what are the recipes for success for business owners looking to stay afloat or even thrive?

Meet the Players
EHR Vendors
Whether selling certified modules or complete end-to-end solutions, EHR vendors fall into one of two categories: inpatient or outpatient. The true lengths of either group’s end-to-end solutions are not created equally. Those who offer only certified modules as opposed to “complete” EHR packages are subject to the same consolidation efforts impacting the rest of the niche service and technology vendor landscapes.

Even if module vendors offer their interfaces for free—a familiar strategy used by niche suppliers to differentiate themselves from larger portfolio vendors—the data exchange capabilities required for any platform, full or partial, to be certified minimizes the degree of difficulty for making such connections. Consequently, complete platform vendors with simplified pricing models—such as many cloud-computing options that offer one price for all modules whether or not the client uses them—make it difficult for even the most loyal customers to justify carving out niche portions of their workflow for specialty module suppliers. Their best hope for long-term survival rests with full-package vendors operating under cafeteria pricing models that make their independent modules cost-effective.

Inpatient EHR Vendors
After accounting for the certified options of familiar industry standard-bearers such as Cerner, CPSI, Epic, GE, HMS, McKesson, NextGen, QuadraMed, and Siemens, the number of remaining full-package inpatient platform vendors becomes quite small (a few dozen at best). The larger the firm, the more likely it is to offer well-thought-out—from an IT/workflow perspective—niche-killing applications. On the other hand, some of the smaller, newer entries to the field are former niche players that have extended the reach of their previous offerings to meet full certification requirements and compete against the big boys.

With a greater tendency toward simplified pricing and effective remote service reputations, smaller vendors are expected to gain notable market share with independent hospitals and clinics restricted by limited financial and IT resources. Typically, these healthcare organizations shy away from the bells and whistles inherent to larger platforms due to the added costs and support requirements.

Outpatient EHR Vendors
Given the relative simplicity of inpatient platform requirements—especially at the module level—the list of certified outpatient vendors is quite large. Because independent clinics have been much more apt to orchestrate multiple vendors to manage their entire process and they cannot afford an enterprisewide solution, the outpatient market can be expected to remain quite fragmented.

Just as in the inpatient space, however, complete outpatient platforms are expected to eliminate many of the niche-only players. Outsourced services are the only potential advantage left for niche players to leverage. Providers who have eliminated their in-house transcription, coding, and/or revenue cycle management activities are not expected to bring those tasks back in-house due to EHR/ICD-10 pressures. Consequently, numerous previously exclusive platform vendors have been busy adding service options as extensions to their technology products so they can offer comprehensive end-to-end solutions. To counter that market pressure, service vendors are forming alliances with some of the more flexible technology vendors to provide their own version of integrated technology and services for bundled rates.

Non-EHR Technology Vendors
As any HIM director or clinic office manager can tell you, there are a ton of specialty niche vendors trying to extend the use of their products in the healthcare market space, many in the generic IT or computer security fields. Given the tightly defined requirements for any inpatient or outpatient platform to gain certification and the efforts of their vendors to identify differentiators, firms offering independent products for e-signature, secure e-mail, or smartphone access to tack onto someone else’s EHR can expect to see their healthcare market shares plummet as such features become increasingly common as no- or low-cost options integrated with complete offerings.

And although such niche product vendors just as frequently call on the EHR platform providers, once an EHR vendor has done its certified development work, the programming effort required to add secure e-mail or display reports on smartphones are easy hurdles to overcome. Besides, the addition of such features will not justify price increases to the end clients, so such plug-ins are not worthy of margin sacrifices to third-party vendors.

Service Vendors
In response to buyers focusing on EHR/ICD-10 and the shift away from specialty vendors, many service companies are expanding their offerings, either with complimentary services or technology that meets EHR/ICD-10 objectives. The logic behind this strategy is simple: If they’re not buying what you’re selling, sell them what they’re buying.

But here’s where the fight for survival gets really interesting. As noted above, most service-only vendors have been suffering flat or negative sales growth and have turned to consolidations in mass numbers. Besides transcription, other service firm consolidations are occurring in the coding, billing, and revenue cycle management arenas. However, these transactions are more likely to involve cash-flow-heavy companies adding complementary services, whereas the transcription wheeling and dealing features struggling same-service acquisitions. Either way, it’s adapt or die.

The shift to multiservice, technology-enabled business models was a major factor in the Medical Transcription Industry Association’s decision to change its name to the Clinical Documentation Industry Association. The organization’s goal is to leverage its experience working with practitioners through AHIMA to define service standards and represent the new market vendor’s common interests on Capitol Hill and to other healthcare-affiliated associations such as AHIMA and HIMSS.

Provider Organizations
The wholesale changes required for EHR/ICD-10 compliance necessitate an evaluation of all HIM systems and services, so every vendor should expect to reestablish themselves as the best fit under the new market conditions to even their longstanding, loyal clients. Make no mistake about it: If you can’t proactively convince them you’re the right choice in this environment, your competitors will.

Hospitals and Affiliated Clinics
Given the time pressures, scope, and complexity of EHR/ICD-10 projects, consolidation and standardization are key for hospitals and their affiliated clinics. Consequently, integrated platforms are a must and finding a vendor that offers outsource services is a plus.

As the technology changes are made and affiliated clinics are brought on board, conditions are ripe for buying nearby independent clinics. Adding locations to the project list for solutions that are already being deployed on a large scale adds minimal cost and may be all that’s needed to convince previously uncommitted independents to join.

Private Clinics
Running a small independent business can be a scary experience, and that includes successful clinic practices. Even when the day-to-day business operations are run smoothly, independent clinic owners must balance their direct financial risk against revenue potential and contemplate how it may be tipped by the EHR/ICD-10 mandates. Unless the balance sheet and IT resources are equally strong, the relief expected from selling out may be too much to ignore.

Those that choose to remain independent are destined to be challenged with the same wholesale process and technology reengineering efforts tackled by their larger counterparts. Inevitably, they, too, will look to reduce the number of vendors involved and measure their success based on how efficiently and cost-effectively they’ve been able to consolidate their clinical documentation efforts on the other side.

Survivor Strategies: Handicapping the Field
Not too long ago, big could beat small every time. Now it’s the fast and flexible winning out over the slow and restrictive. With the possible exception of the mammoth players so deeply entrenched that it would be too risky to unseat, the efficiency and cost-effectiveness of some of the new approaches, such as cloud-based computing and single-source technology and service providers, enable the market to operate differently. For example, EHR platform interoperability requirements make it difficult for vendors to justify heavy interface fees when, as a requirement for certification, they must be able to import and export files with other systems in government-defined formats. Consequently, trying to charge thousands of dollars to add or accept a feed for such data makes no sense.

The market rules for data exchange are clearly posted for all to see. It’s time to play nice or expect to surrender market share to those that do.

Early Leaders
Vendors with broad-based applications and/or multiple service lines have a jump on the rest of the field due to their ability to replace multiple competitors in a market trying hard to consolidate. In addition to being difficult to displace for their existing functions, some are now able to take on additional application loads—such as some transcription and coding functions—previously served by specialty vendors due to product developments completed to comply with certification requirements.

Early Exits
Pure service firms heavily dependent on larger hospital clients that are able to eliminate strong percentages of transcription and coding activities with high-end EHR platforms are in serious trouble.

The only potential silver lining hidden deep in the service-only vendor dark cloud is that such labor-eliminating systems are far from cheap or trouble free. Even though their vendors have become experts at justifying their total solution cost against years of labor expenses to get contracts signed, studies have shown that the time required for physicians to document patient visits with these systems increases significantly (60 to 90 minutes per day according to some studies) as do data-entry errors (eg, selecting the proper patient, visit, or carbon copy recipient). Such problems can only be expected to get worse when ICD-10 comes along and the number of codes increases ten-fold.

Dark Horse Candidates
Fast-moving cloud-based computing vendors are well positioned to earn significant market share with smaller hospitals and independent clinics due to their IT-friendly thin-client architecture and tendency to offer simplified and cheaper pricing structures. Such firms can efficiently help stressed clients achieve their certification and vendor consolidation goals, especially if they are able to offer bundled services.

Some cloud-based vendors also rebrand their technology for otherwise service-only vendors. This cultivates a distributor-type sales arrangement for the technology through widely disbursed and locally entrenched service firms, providing them with a much-needed ongoing business lifeline that helps protect their service revenue in exchange for a cost-effective sales model.

Real-Life Immunity
Talk to business school graduates and they’ll tell you that the safest way to protect yourself from a volatile market is to maintain a diversified product portfolio. Vendors that are not diverse in a market determined to consolidate are asking for trouble.

For vendors and healthcare providers alike, the chances of surviving tumultuous market conditions increase dramatically if they are working with their own money. Outside investors, especially under uncertain market conditions, are risk adverse. They are much quicker to pull the plug and get out while they can rather than stay the course and ride out the storm when facing near-term losses or flat growth. If you operate with your own money, you are indeed the master of your own destiny.

Winning Survivor HIM Edition
The HIM playing field is certain to be changed forever thanks to government-mandated EHR and ICD-10 conversions. Some alliances will succeed while others will fail. Several major industry players are bound to fade away while others step up to take their place.

To be successful, the HIM profession must do more than accept change as being inevitable—it must embrace it and make it part of the industry culture. Physicians practice medicine while practice managers and HIM professionals run the business of healthcare. Together, they manage the nation’s health. The HIM industry can’t afford to simply survive—it needs to leverage new technology so that patients and businesses are able to thrive.

It’s time to adapt or die. The market has spoken.

— Dale Kivi, MBA, is director of business development at FutureNet Technologies Corporation and a member of the Clinical Documentation Industry Association’s board of directors.