Health care software heading for shakedown
ORYX PLUS to spur spending
[This month we conclude our conversation with J.D. Kleinke. Until earlier this year, Kleinke was a top executive with HCIA of Englewood, CO. Currently he works as a consultant, medical economist, and author in Denver. For part one, see QI/TQM, May 1998, p. 67.]
Q. We've seen dozens of software companies designated as ORYX vendors, and ORYX appears to have heated up the market for these products considerably. Is there room in the industry for 80 to 90 software suppliers of benchmarking and outcomes reporting systems?
A. Absolutely not. The industry is in the process of consolidating. It's a lot like the 1980s when there were lots of software and PC companies, and they ultimately were rolled up into a handful. And certain industries mutate toward their most efficient forms. That's how Wall Street works and how markets work. And because quality management software is still very much a nascent discipline, it gives rise to a cottage industry-like structure right now, just like general PC software a generation ago.
But if you look at the very aggressive consolidation strategies of companies like HBO or TSI or even companies like HCIA, as fragmented as the health care information technology market still is, we're in the midst of probably a 10-year consolidation or streamlining of the industry. It's just not supportable to have 80 or 90 vendors.
That consolidation would occur simply by the nature of the supplier industry. Any forces that would compel consolidation are then compounded by consolidation on the demand side. Hospitals consolidating into chains and buying groups just accelerate this trend. Fewer, bigger customers in an industry almost always demand fewer, bigger suppliers.
Q. Are a lot of the provider systems that opted to go with smaller, less expensive packages going to get burned when their suppliers go out of business?
A. Not at all. When you buy a company - and I speak from hard experience - you're buying their customers. You're buying their installed base and the products. When you do that, you hope to do two things: To justify the cost of what you paid for the company, you need to preserve that customer as a revenue stream going forward. So you need to serve that customer and support that product at least as well as they were supported in the past.
What it means then, if your small software vendor just got rolled up into a larger one, you're not only going to have that product supported, you're probably going to have that product upgraded and integrated into a much broader product suite. It's going to make it a lot easier for you to expand what you're using, or to combine and integrate what you're using with other products and systems marketed by that vendor. I think the customer really wins in that situation.
For example, if you were a CliniCom or a GMIS customer a couple years ago, you now have access to the entire suite of HBO and Co. products.
Q. You have access to an entire suite of products for more money?
A. For more money, yes. But with the economics of consolidation, you're getting marginally more product per dollar. It's actually going to save money because consolidators like HBO invest in integrating products, which means that if you buy a pre-integrated solution, you don't have to integrate the products after you've purchased them.
That's the theory behind Microsoft buying up a lot of little niche software companies so that everything runs off your Microsoft desktop. Same exact idea, in practice.
Q. Many of the providers reporting on the Joint Commission on Accreditation of Healthcare Organizations' (JCAHO) ORYX have had to lump four or five DRGs together to cover 20% of their patient base in the first year of reporting. JCAHO only requires initial reporting on two outcomes, as long as they represent 20% of patient base. Given that, does it make sense to have two ORYX systems: ORYX and ORYX Plus?
A. Right now they really want everybody to be on ORYX Plus, supplying that additional detailed level of data. But it's not realistic to expect everybody to be able to participate at that level.
So I think what they did was to create a compromise solution that would allow everybody to participate by lowering the bar enough to get everybody in. At the same time, by maintaining a higher bar, you also get the level you want. It was a nice way for them to hedge their bets.
The issue about rolling the DRGs together has nothing to do with the size of an institution. The only institutions that could generate 20% of patients without rolling DRGs together would be the highly focused, specialized places like a heart hospital that does only hearts. Most facilities are broad, diversified institutions, so even if you've got 50,000 patients a year, they're still spread out over dozens of DRGs. Remember 20% isn't a raw number, it's a fraction, so everybody's going to have to roll DRGs together unless they do only hips or open heart, for instance.
Q. Can you venture any predictions on how long before the Joint Commission requires every provider to use ORYX Plus?
A. No predictions other than to say whatever they predict, I would add another 50%. The Joint Commission has a track record of having some fairly ambitious goals that the industry has not done a good job of meeting. They can predict that everyone will be there in three to four years, but chances are a sufficient number of people won't be ready and the Joint Commission will have to back down on the target. But that's part of the drama.
Q. Several recent surveys indicate that hospitals' spending on technology is rising quickly. Does your own industry research bear this out?
A. Absolutely. All our market research bears this out. It is the single largest source of new capital spending by hospitals. And it's going up. I've seen estimates that range between 25% and 40% a year.
There's a very good and obvious reason for that. If hospitals are truly going to transform themselves from inpatient facilities to integrated delivery systems, they've got to integrate information. They can't just rely on the ADT - admissions/discharge/transfer standard installed systems for managing inpatient flow within the hospital - system and the internal inpatient transaction records anymore.
If they really want to manage care - the pre-operative visits, the physician activity, the lab work, the home health that they are all investing in, and the ambulatory drug compliance - if they're truly going to take risk and be PSOs and do all the other things that hospitals are trying to do right now strategically, then they must invest in the information infrastructure to manage that.
All the products you hear about from Cisco and Sun and all the enterprisewide, intranet-types of technologies, they are not cheap. They're brand new and nobody's really equipped with them right now. Still, the only thing that really defines a truly integrated delivery system is an at-risk contract and a fluid, integrated information system.
The old information processing was all transaction processing, billing software, EDI (electronic data interchange which is the electronic submission of claims for payment), all things that made you a better biller. That's simple and cheap by comparison to what hospitals need to be going forward as truly integrated information based providers. Hospitals need software that build common data repositories so a patient who shows up at Hospital A in the system, for example, will result in information that physicians over at Facility B can use - information that includes medical records data, radiographic images, drug information, compliance, notes, health history, complications, the works.
Q. What's going to be the biggest hurdle for health care providers in achieving that degree of connectivity?
A. The biggest hurdles are cultural. This is a perennial frustration to all of us who serve the hospital industry. The people who run hospitals - the CEOs, the CFOs, the CIOs - are inundated with pressures. Coping with Medicare. Coping with managed care contracting. Coping now with all this new compliance and fraud and abuse nonsense. They're so busy trying to run the day-to-day business that to focus on, to be able to understand, and to go out and aggressively build these infrastructures is a daunting task.
It's a bandwidth problem. These people running these facilities are maxed out. And yet, they've got to be anticipating and understanding some very complex technological issues. These technologies change every year. Two years ago, the Internet and Internet technologies were nonfactors. Now it's all you hear about.
Trying to digest all that and take positive action is a monumental task for anybody, let alone somebody that's also got huge regulatory issues, big financial matters to deal with, and a lot of organizational management pressures. That's the biggest impediment. It's just cultural.
(For further information on health care data systems, contact J.D. Kleinke by e-mail: [email protected].)
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