21st Century Health Care: The Information Technology Impact on the Quality and Cost Effectiveness of Health Care

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• 21st Century Health Care The Information
  Technology Impact on the Quality and Cost
  Effectiveness ofHealth Care
• William S. Bernstein, Esq.
• Co-Chair, Government and Regulatory Division
• Manatt, Phelps Phillips, LLP
• June 25, 2004

80303612
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Table of Contents

• State of U.S. Health Care System
• Why Investing in Health Information Technology
  Matters
• Where We Stand Today Why Investment Has Not
  Taken Place
• What Needs To Be Funded and What We Would Hope to
  Achieve
• A Proposed Solution Creation of a Healthcare
  Information Technology Revolving Loan Fund Program

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State of the U.S. Health Care System

• Changing Demographics Americans age 65 will
  increase from 12 of population in 1997 to 20 of
  population in 2040
• Rising Health Care Costs Premiums increased
  12.7 in 2002, 8 times the general rate of
  inflation and are likely to be higher this year

4
State of the U.S. Health Care System

• Healthcare Professionals In Crisis Physicians
  leaving practice as a result of rising
  malpractice costs Shortfall of 400,000 nurses
  nationwide
• Persistent Problems of Uninsured Continue
  Approximately 15.2 of all Americans lack
  insurance coverage

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State of the U.S. Health Care System

• Enormous Quality and Safety Issues Plague U.S.
  Health Care System
• Unacceptable Rate of Practice Variations leading
  to 450 billion in unnecessary spending according
  to one recent study
• Staggering number of preventable medical errors
  kill more people annually than motor vehicle
  accidents or breast cancer
• Adverse drug events in 5 to 18 of ambulatory
  patients
• 17 years for new knowledge generated by
  randomized controlled trials to be incorporated
  into practice

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State of U.S. Health Care System

• 5 Visual Images To Remember

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High Costs
Health Care Spending Per Capita
6.9
4.8
3.1
Source Health, United States, 2002Five
Countries Luxembourg, Canada, Germany, Norway,
SwitzerlandG-7 Countries Canada, France,
Germany, Italy, Japan, United Kingdom
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Unnecessary Costs
of Health Expenditures
Unnecessary
Necessary
Cost
Cost
30
70
Project Hope,
Wennberg
et.al., 2003
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Number of Uninsured
Source U.S. Census Bureau, Current Population
Survey, 2002 and 2003 Annual Social and Economic
Supplements
10
Poor Quality
45
Right
Wrong
45
55
70
RAND, 2003
...17 years... - IOM Report Crossing the
Quality Chasm, 2000
...44,000 to 98,000 deaths... - IOM Report
To Err is Human, 1999
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Poor Access to Information
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Why Investing in Healthcare Information
Technology Matters

• Evidence Shows Investment Can
• Save Money
• Improve Quality
• Thereby, allowing for expansion of coverage to
  the uninsured
• Saving Money
• The Institute of Medicine estimates that medical
  errors cost the Nation 37.6 billion each year
  about 17 billion of those costs are associated
  with preventable errors

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Why Investing in Healthcare Information
Technology Matters

• October, 2003 GAO Report found that the 10 health
  care delivery organizations reported 13 examples
  of cost savings resulting from the use of IT,
  including reduction of costs associated with
  medication errors, communication and
  documentation of clinical care and test results,
  staffing and paper storage, and processing of
  information.
• Center for Information Technology Leadership
  study indicated 44 billion in savings
  (prevention of more than 2 million adverse drug
  events and 190,000 hospitalization per year)
  could be realized from adoption of Computerized
  Physician Order Entry (CPOE) in an ambulatory
  care environment

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Why Investing in Healthcare Information
Technology Matters

• New England Healthcare EDI Network has resulted
  in substantial administrative savings for both
  payors and providers alike - - i.e. Cost of
  eligibility check reduced from 4.74 to 15 cents
• A recent cost benefit analysis of electronic
  medical record systems showed that their use by
  primary care providers could result in 86,000 in
  savings over 5 years. Benefits include reduced
  drug spending, reductions in radiology, and
  decreased billing errors.

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Why Investing in Healthcare Information
Technology Matters

• Improving Quality
• At Brigham Womens Hospital, Computerized
  Physician Order Entry reduced error rates by 55
  - from 10.7 to 4.9 per 1000 patient days
• A recent study of intensive care patients by
  Kaiser Permanente found that when physicians used
  a computerized system, the incidents of allergic
  drug reactions and excessive drug dosages dropped
  by 75 the average time spent in the unit
  dropped by 4.9 days to 2.7, slashing costs by 25

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Why Investing in Healthcare Information
Technology Matters

• Harris Interactive Boston Consulting Group Poll
• 36 physicians said e-prescribing improving
  efficiency
• 45 physicians said e-prescribing improves
  compliance with formularies
• 33 physicians said e-prescribing has a major
  impact on quality of care

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Where We Stand Today Why Investment Has Not
Taken Place

• IT Investment in Health Care Very Low

Percent of Revenue for
Information Technology 2002
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Where We Stand Today Why Investment Has Not
Taken Place

• Government spends its health care dollars
  elsewhere

364600
2216
1852
100
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Where We Stand Today Why Investment Has Not
Taken Place

• The Result is Not Surprising
• More than 90 of an estimated 30 billion health
  care transactions each year are conducted by
  phone, fax or mail
• Less than 5 of physicians use electronic health
  records
• According to a recent JAMA study, only 9 of
  medical decisions are rated as informed
  decisions.

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Where We Stand Today Why Investment Has Not
Taken Place -
Barriers To Adoption of IT

• STANDARDS Lack of adoption of interoperable
  systems and data standards
• LEADERSHIP At the national level, at the
  community level, within provider institutions and
  clinician practices
• FUNDING AND BUSINESS MODEL Misalignment of
  incentives among those who pay for IT and those
  who benefit from it. Lack of upfront and ongoing
  operating capital for investment in IT
  infrastructure
• WORKFLOW ISSUES Organizational change issues

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What Needs To Be Funded And What We Would Hope To
Achieve

• Medical Services Area
• Manageable size
• Could be a city, county
• A Community is not
• Physician Practice
• Hospital
• Integrated Delivery Network
• County Health Department

2Hospitals
180Physicians
100,000Population
6Pharmacies
3Labs
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What Needs to be Funded And What We Would Hope To
Achieve
Patient Data
Medical Knowledge
Couple
Identify Patient-SpecificIssues
Communicate Care Considerations to treating
physician and patient
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What Needs to be Funded And What We Would Hope To
Achieve
Patient Data
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What Needs to be Funded And What We Would Hope To
Achieve
Eliminating High Costs
of Savings Generated
Decision Support Systems
Electronic Health Record
Clinical Data Sharing
Source Center for Information Technology
Leadership, 2003
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What Needs to be Funded And What We Would Hope To
Achieve
Business Platform Which Shares Costs and Benefits
of IT Investment
Others
Providers
Source Center for Information Technology
Leadership, 2003
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What Needs to be Funded And What We Would Hope To
Achieve
Business Platform Which Shares Costs and Benefits
of IT Investment
State/Local
Households
Medicaid
Medicare
Employers
Source Health, United States, 2002
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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• The Government can best achieve its objectives
  with respect to healthcare information technology
  investment through a public-private partnership
  model the PPP Model
• Key characteristics of public-private
  partnerships include
• Compelling public policy need for investment
• Recognition that investment either would not
  happen, or would happen at an unacceptable cost
  or timeframe, without creation of the PPP

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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• Structure which enables government to reduce its
  costs while at the same time improving the level
  of quality of services to the public
• Economic platform which is financially
  free-standing allowing projects to be privately
  financed and operated based on revenues received
  for the delivery of goods and services

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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• There is a long and successful history of funding
  essential infrastructure through Federal/State
  Revolving Loan Programs

Federal Revolving Loan Fund Programs
TotalFunding Commitments Amount of Projects
Financed (Figures are aggregate through June 30,
2002)
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A Proposed Solution Creation of an
Information Technology Revolving Loan Fund
Contributions Partnership Cash Flows

• Federal/State Contribution
• AHRQ Grants
• Agreement with Medicare and Medicaid Programs
• Provision of Federal Bond Insurance
• State Issued Bonds Tax- exempt or
  Taxable

• Income
• Grant Funds
• Lease/Loan/Service Contract Repayments
• Financing Fees
• User Fees (where applicable)

State/RegionalHealthcare Information Technology
Corporations (HITC)

• Expenses
• HITC Operating Expenses
• Repayment of P I on Indebtedness

• Private Sector
• Sponsorship of Projects and Obligation to Repay
  Indebtedness
• Private Foundation Support

Net Cash Flow
HITC Share
Government Sector Share
PROJECT SPONSORS
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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• Through supporting community-wide planning,
  provide long term term financing for
  multi-stakeholder projects that invest in
  information technology for the purpose of
  promoting good quality and efficient healthcare
• Ingredients to Success
• Multi-Stakeholder Participation
• Information Technology
• Clinical Best Practices/Process Improvement
• Physician Adoption
• Alignment of Financial Incentives Between
  Purchasersand Providers of Care

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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• Key Structural Features
• Federal/State funds used to create Revolving Loan
  Fund program which supports healthcare IT
  infrastructure projects
• Initial funding could come from allocation of
  dollars used in connection with administration of
  Medicare and Medicaid programs
• Federal government provides qualified projects
  with insurance allowing for low borrowing rates.
  Initial funding by Medicare and Medicaid programs
  can be leveraged to create larger capital
  financing program
• State government issue tax-exempt and taxable
  bonds to fund qualified projects

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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• Project sponsors obligated to repay project
  indebtedness. Funds collected in excess of funds
  required to repay debt service used to fund
  additional projects
• Project sponsors obligated to pay financing fees
  which fund operations of administration of
  program by not-for-profits, Healthcare
  Information Technology Corporations, the Boards
  of which consist of private citizens and
  government appointed designees
• Based on other RLF programs, other features of
  the public-private partnership program may
  include a requirement that Fund administrators
  put up matching funds equal to up to 20 of the
  federal contribution

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A Proposed Solution Creation of an Information
Technology Revolving Loan Fund

• Broad enabling legislation ensuring
• Federal funding of corpus of loan funds to be
  administered by HITCs and
• Project selection authority which allows for
  meeting of needs of local communities, while at
  the same time ensuring compliance with Federal
  standards and
• Provision of a wide selection of credit
  facilities to eligible projects, including low or
  no interest loans, credit enhancements, such as
  lines of credit and payment guarantees,
  subordinated loans, risk pooling and extended
  repayment schedules and
• Grants for safety net facilities and rural health
  providers and
• The authority to provide technical assistance to
  eligible projects, including assistance with the
  funding applications, financial plan preparation
  and project design