HIE: An Industry in Its Infancy

The U.S. federal government committed to spurring health information exchange (HIE) activity across the country through the HITECH Act, offering a total of $548 million to states to facilitate local electronic exchange. Four years later, HIE activity has increased, but HIE organizations still struggle to achieve financial sustainability.

Out of 222 HIE organizations identified in a November 2012 report published by eHealth Initiative (eHI), 88 were recognized as fully operational and 26 as sustainable. Surveyed on barriers to HIE, 116 reported that developing sustainable business plans was a top challenge and 103 reported the current lack of funding as a top challenge. The responses suggest that even advanced organizations have just a tenuous grasp on sustainability.

What’s holding HIEs back?

There are a number of obstacles HIEs encounter on the path to financial sustainability.  To achieve sustainability, HIEs require capital investments to develop technical infrastructures, collaborative governance from a disparate set of stakeholders and a well-defined value proposition.

While some critics point to other digitized industries to show how healthcare could be better, enabling electronic exchange of health information is more complex than, say, enabling electronic financial transactions. “It’s more difficult than financial systems,” says Jeffrey Rose, a venture partner with ICG Group and co-chair of the National eHealth Collaborative’s HIE learning network workgroup on financial sustainability.“All financial transactions are enumerated in a common denominator: money. We might think that the expression of laboratory values would be fairly consistent regardless of the laboratory or their vendor, but that’s not true.”
Indeed, other top challenges indicated in the eHI report include technical challenges, such as procurement, architecture, applications and interoperability, as well as concerns with privacy and confidentiality.

Misalignment of incentives was an early concern recognized by an expert panel convened by the National Opinion Research Center (NORC) at the University of Chicago. “The most critical challenge to achieving sustainable HIEs remains the lack of financial incentives for HIE and the situation where entities benefiting from HIE are different from the entities bearing the costs,” read the panel’s report, published in April 2009 shortly after the HITECH Act was passed, for the Office of the National Coordinator for Health IT (ONC).

If an HIE is able to improve healthcare quality, the benefits will flow not to providers investing in the HIE, but to patients in the form of better outcomes and to payers in the form of reduced spending, according to Rose. For instance, a hospital that is able to reduce demand for emergency department services by making patient information more readily available to primary care providers is damaging its bottom line.

While the eHI report noted that there were nine fully functioning HIEs in 2004 and some initiatives date back to the 1990s, the HIE industry is relatively young. “We’re in product development, which implies the need to define a value proposition,” Rose says. The three-pronged mission to reduce costs, improve quality and increase access is often touted as the reason to engage in HIE, but operating as business entities must provide granular organizational goals, not broad mission statements. “When we say the benefits are obvious, it lacks much specificity, so we end up with generalities and theories. The industry should be able to point to clear, quantifiable results.”

New & ongoing efforts

In 2010, the Harris County Medical Society and the Center for Houston’s Future partnered to develop a regional HIE, now called Greater Houston HealthConnect (GHH). “One of the first things we did was put together a research map,” says Robin S. Mansur, director of marketing and planning. “We wanted to find out what others were doing with respect to pricing and sustainability.”

A governance team representing health systems, community providers, nonprofit organizations, investors and academic institutions settled on a service based on patient revenues for hospitals and a flat participation fee for independent providers to access a community health portal, a referrals management platform and a direct messaging application.

“The value-proposition has been a bit of a moving target,” Mansur says. Shortly after GHH was established, the organization garnered statements of interest from approximately 80 percent of the area’s 144 hospitals and more than half of the area’s 14,000 independent providers. GHH received a grant from the Texas Health Services Authority, which administered HITECH funds, to build the technical infrastructure.

The Meaningful Use (MU) EHR incentive program, laid out in the HITECH Act, was intended to facilitate health IT adoption at an accelerated rate, which has made it difficult for GHH to pinpoint an attractive value proposition. Providers who felt EHR vendors had overpromised and underdelivered were reluctant to buy in. Collaboration with health systems and Harris County Society’s involvement have helped bridge the gap, but HIE requirements for MU incentive payments also have played a role. “Physicians are beginning to wake up and realize they need to do something here,” Mansur says.

Scott Kidder, director of sales and marketing for Michiana Health Information Network (MHIN) in South Bend, Ind., agrees that MU requirements have pushed providers to adopt HIE but also says vendors aren’t necessarily ready. “It has become a focus on a checklist rather than improving the quality of care.”

MHIN, born of the partnership between a large laboratory in Indiana and several large health systems, began electronic exchange of test results in 1999. It formed as a limited liability corporation rather than a nonprofit, which made it ineligible for HITECH funding and “forced us to focus on the services we offered,” Kidder says. Self-sustaining since the mid-2000s, MHIN’s suite of services has grown to include a clinical data repository, direct messaging, EHR implementation, data integration and a patient personal health record.

MHIN charges community providers to build interfaces and monthly subscription fees varying on the services they purchase. There is not a concrete pricing model for hospitals. Instead, MHIN evaluates these customers on a case-by-case basis and estimates an annual fee based on the services they require.
“There’s no magic bullet when it comes to pricing and sustainability,” Kidder says. “We look at every hospital that we’re working with and conduct deep evaluation of what services interest them.”

Forging ahead

Current thinking is that 200 or more of these efforts should be sustainable by now, Rose says, but “that’s not a realistic expectation of any new business venture.”
GHH currently operates primarily on seed funding from federal and private grants, with about 10 percent of its revenue coming from service fees. Having just gone live in December 2012, GHH expects 30 hospitals, accounting for 40 percent of area discharges, and 2,100 community providers to electronically exchange information in 2013. Aggressive targets have been set for the next five years and GHH believes approximately 100 hospitals and 7,000 community providers will be participating in 2017, when it expects services fees to account for 80 to 90 percent of its revenue. At that point, “revenue will depend on the value of the services we offer to the community,” Mansur says.

It will be a challenge for GHH and all other HIEs to reach sustainability to get there. Among fully operational HIE organizations, approximately half rely on some federal or state funding and 26 rely on federal or state funding for more than 50 percent of their revenue. With HITECH funding for HIEs set to expire in 2014, that reliance will likely need to shift to other sources of revenue.

As HIE organizations expand to achieve economies of scale and reach critical mass, when investment capital is no longer necessary to maintain operations, it is likely that many will fail or merge. That process already has begun in Texas, where two separate HIEs based in Galveston and Beaumont collapsed into GHH, according to Mansur. In Indiana, five existing HIEs have persevered, but there have been discussions of consolidation, as some duplicative services being offered, according to Kidder.   

“It’s highly unlikely that we’ll have 200 or more of these 10 years from now,” Rose says. “There will be industry consolidation.”

In the era of healthcare reform and fast-paced health IT initiatives, it’s difficult to predict what the HIE landscape of the future will look like. The challenges facing HIEs are representative of the challenges facing healthcare in general, according to Rose. Reducing costs and improving quality are “different goals and different manifestations of what healthcare could be.” Fleshing out the specifics will present a clearer view of the services HIE organizations should provide and who should pay for them,” he says. “First, determine the purpose of the HIE, then you can build a sustainability model around a clearer statement of the goal.”