EHR developers under pressure

The long-anticipated shakeout in the EHR market is underway.

A Modern Healthcare analysis of federal records shows there has been a massive drop in the number of software developers with clinical computer systems tested and ready for use in the second phase of the federal electronic health record incentive payment program, portions of which go into effect this week.

Hundreds of hospitals and thousands of office-based physicians caught with underrated EHRs are now facing the prospect of losing full Medicare reimbursements and missing millions of dollars in future payments from the health IT incentive program, which so far has pumped $16.2 billion in federal aid to the industry since 2011.

Just under a thousand software developers had their EHR technologies certified under 2011 standards that met the Stage 1 “meaningful use” requirements under the 2009 American Recovery and Reinvestment Act. But the more stringent Stage 2 requirements, which go into effect Oct. 1 for hospitals and Jan. 1 for physicians and other eligible professionals, have many vendors pole-axed. Just 79 health IT developers have certified systems ready for the government's mandatory 2014 standards.

“This is just the beginning of the shakeout,” said Dr. David Brailer, founder and CEO of Health Evolution Partners, a San Francisco-based private equity firm and former head of the Office of the National Coordinator for Health Information Technology at HHS. “There is an asset bubble in electronic health records and health IT” from the massive stimulus in ARRA.

Federal officials are expecting many vendors to drop out of the program. In a lengthy post Sept. 13 on the ONC's blog, Steven Posnack, director of federal policy, and Dustin Charles, a public health analyst, noted that while “an impressive number of different EHR vendor products” have been used by providers to meet their meaningful-use targets in Stage 1, “the data suggests that it is likely we'll see a sizable reduction in the number of EHR vendors listed for 2014 Edition certification.” Close to half the products certified for Stage 1 have never been used.

Even those vendors with customers are challenged to keep up. There were 3,343 “complete” in-patient hospital EHR systems built by 38 different developers and deployed by Medicare meaningful users, but 92% of those are from just the top 10 vendors. Two of them have nothing certified for 2014. Of the next 10 on the list, only two have an updated product ready to go.

The situation is even more tenuous in ambulatory care. Three of the top 10 vendors of complete EHRs for physicians (the top 10 account for 65% of the ambulatory-care market) do not yet have a 2014 certified product, potentially leaving their 31,240 physicians with noncompliant systems next year. Another 30,500 physicians purchased EHR systems from more than 400 vendors certified for Stage 1, most of which have not yet come up with a certified product for meaningful use Stage 2.

Lobbying groups for hospitals and physicians, including the American Hospital Association, the American Medical Association and the MGMA-ACMPE, have urged HHS Secretary Kathleen Sebelius not to impose penalties or deny incentive payments to providers for a situation not of their making. Last week, 17 Senate Republicans wrote Sebelius asking HHS to delay implementing Stage 2 for those providers that are not ready. Vendors “are under tremendous time pressures to ensure their products are certified for the 2014 criteria and have sufficient time to upgrade their products for each hospital or physician client(s),” the senators said.

Trade associations for the health IT industry say they are “not entirely surprised” by the comparatively low number of systems certified for 2014. “The requirements are massive,” said Lauren Fifield, vice chairwoman of the government relations workgroup for the Electronic Health Records Association, representing more than 40 EHR developers. “We're all working hard … We expect the number of certified products will rise substantially over the next couple of months.”

But many users believe the era of a large number of developers, each serving a small number of clients, is coming to an end in health IT. “I remember the corner candy store, too,” said Dr. Harris Stutman, executive director for clinical informatics for five-hospital MemorialCare Health System in Fountain Valley, Calif.

“Many of these vendors have so few customers. … To do the work (to) certify to the new standard” requires investment that “certainly runs to six or seven figures. How do you fund that if you're a mom and pop vendor?

“Staying a small mom and pop vendor in this environment, given the complexity in general and all the healthcare reform, the way people are getting organized for accountable care, patient-centered medical homes, it's just going to be really difficult for very, very small-time vendors to keep up,” Stutman said.

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