Earlier this year, the TriZetto Group issued its financial report for 2004, announcing that the company had made a profit for the first time in its eight-year history.
In addition to strong software sales, the Newport Beach, Calif.-based company credited its "exit from less profitable lines of business" as a reason for this success. Further explanation was found in a footnote: It had gotten out of the business of outsourcing information technology services to physician practices.
"It's a pretty clear-cut story," says TriZetto spokeswoman Audrey McDill. "It's less about what's wrong with the provider market than what's right, for us, with the payer market."
McDill notes that when TriZetto went public in 1999, $21.4 million, or 65%, of the $32.9 million in total revenue it generated that year was from its "provider unit." In 2004, however, out of total revenue of $274 million, its provider unit generated only $4.7 million-or 2%.
"The physician group did constitute a significant part of our revenue when we first started," she says. "But that's a tough market to penetrate with technology. In terms of the software we had to offer and what the market needed, we saw our opportunity in the payer market and this just made sense."
The TriZetto story is not unique, observers say. Even though physicians are increasing their use of IT and the percentage of healthcare services delivered by small physician practices dwarfs the percentage delivered by hospitals, large IT companies continue to leave or ignore the physician-practice market to focus on hospitals and large healthcare networks.
"You're seeing the bigger players get- ting out of that market," says Steve Scheer, business development manager for Physician Micro Systems, a 100-employee provider of Web-based electronic medical-record and practice-management packages. "But you're also seeing midlevel companies getting in."
Siemens Medical Solutions USA spokeswoman Molly Grasso, however, says that hospitals remain her company's primary focus in the healthcare market, and physician practices aren't part of its plan.
Stephen Hau, vice president of marketing and business development for 85-employee PatientKeeper, says his company-which provides mobile access to electronic charge capture, dictation, prescribing and reference library services-is partnering with GE Healthcare to serve physician practices.
"GE will take our technology and bring it to their ambulatory customers," Hau says. "We are increasing our activity in the group-practice setting and it's a segment of the market that has become interesting to us." He adds that it's also becoming interesting to others, as "some of the larger IT vendors are starting to tippy-toe into the (physician-practice) space."
GE, in fact, took a big step into the healthcare IT sector late last month when it agreed to acquire healthcare IT giant IDX, based in Burlington, Vt., in a deal valued at $1.2 billion. Observers say the combination of the two companies will create a leading IT vendor, offering a comprehensive package of clinical, imaging and administrative information systems.
Bruce Harris, physician-services account manager for 16,000-employee Perot Systems Corp., agrees with Hau. "Our focus for the next year or two will be on larger groups," he says.
While computers have long ceased to be a novelty in just about every other aspect of modern life, observers say the physician-office IT market is just starting to grow.
For example, according to a recent study by the Medical Group Management Association, adoption of electronic medical-records systems has been a slow process among physician groups, especially smaller ones. With medical practices of five or fewer doctors, the adoption rate was just 12.5%, according to a study conducted early this year of more than 3,000 groups in the MGMA's database. Larger groups had higher rates of adoption, but the highest-for groups with 21 doctors or more-was still less than 20% (See chart, this page).
Girish Kumar, founder and vice president of sales and marketing of eClinicalWorks, says it's only the first inning of the outpatient IT outsourcing game and that hard work, individual service and constant training will be needed to make it to the ninth.
"To succeed in the outpatient physician market is hard. I think the big companies are trying, but the (business) model is different," Kumar says. "They're used to selling to one big site with 1,000 users instead of 100 sites with 10 users."
Along with electronic medical-record and practice-management systems, Kumar says eClinicalWorks offers outsourcing of IT services such as server maintenance, data backup and disaster recovery, which combined make up about 10% of its business.
Web-based versions of its services are available through its new subsidiary, eClinicalWeb, formerly IntegriMed, which it acquired from Orion HealthCorp in June.
Orion Chief Executive Officer Terrence Bauer says the company decided to sell the unit so it could concentrate on its three remaining subsidiaries that deal more with the business rather than clinical end of healthcare, and it should not be seen as an abandonment of the outpatient IT market.
Bauer also says that, just because it's a booming market, it doesn't mean that putting IT products in the hands of physicians is going to be easy money. "Many are resistant to change," Bauer says. "But the hardest part is selling to them. The cost of each sale is high because of the diversity in size among the groups."
Besides not being set up for the demands of a high-volume, low-margin operation, big companies are hesitant to invest the resources needed to market their products to doctors, who have a reputation for being tough customers.
Kumar says selling IT to doctors is a very straightforward process based on showing functionality. "They say, `Show me how you would do this,' " he says. " `Show me function and price, and let me talk to a few people who are using it.' "
Others offer similar stories. "If you don't have good references, it's hard to stay around," Scheer says. "They want to talk to someone who has seen it and done it."
Jonathan Bush, president, CEO and co-founder of Athenahealth, calls this "peer referencing" and says it can get pretty specific. "They'll say `I don't believe you can do this unless I see another gerontologist in South Houston with three partners who's using it,' " says Bush, whose cousin-President Bush-is helping steer the healthcare industry toward electronic medical records.
It's not just the federal government's efforts that are helping his 400-employee company grow, Bush says. Talk about pay-for-performance programs and complying with the Health Insurance Portability and Accountability Act of 1996 are also moving outpatient IT outsourcing forward, but perhaps not as much as the realization among rank-and-file doctors that computers can improve patient care and make their own lives easier.
Despite that push, a large obstacle remains that ensures selling IT to physicians will remain difficult. While business models can be adapted to a market and marketing strategies can be tailored to a customer's desires, it can all be for nothing if the products aren't affordable.
"Physician groups are being squeezed at many levels," Harris says.
While government actions may force small groups to abandon paper systems, Harris says this has the unfortunate effect of making physicians feel like "little pawns being pulled along."
Harris says he believes these challenges will be met through the creation of regional health information organizations, or RHIOs, that will work to electronically connect a community's hospitals, physician offices, nursing homes, lab, pharmacies and home-care agencies.
"In the development of these RHIOs, large academic medical centers and groups become the foundation," he says. "But, in order to make the RHIO work, they have to bring in the rest of the providers in the community."
Harris says local organizations will work together to provide small physician groups with basic Web-based "canned systems" that will allow independent physicians to communicate electronically with the large organizations within the RHIO.