Edward Fotsch, MD is CEO of PDR Network.

Tell me what PDR Network does.

PDR Network distributes drug safety information, typically FDA-approved drug safety information. The full FDA-approved labels, drug alerts, the new REMS programs, and now increasingly collects drug and device safety information. Our focus is really on the collection and distribution of drug and device safety information, including the appropriate use of drugs and devices.

We publish the PDR, we have PDR.net, PDR Mobile, and a growing suite of services integrated into electronic health records.

Why was EHR Event formed, by whom, and via what process?

We work with a not-for-profit board called the iHealth Alliance. They Alliance is made up of medical society executives, professional liability carriers, and liaison representatives from the FDA. They govern some of the networks that we run, and in exchange for that, help us recruit physicians. Professional liability carriers, for example, promote our services that send drug alerts to doctors because that’s good and protective from a liability standpoint.

In the course of our conversations with them roughly a year ago, when we were talking about adding some drug safety information into electronic health records, we came across the fact that there were concerns from the liability carriers that there was no central place for reporting adverse EHR events or near misses or potential problems or issues with electronic health records. They were interested in creating a single place where they could promote to their insured physicians that they could report adverse EHR events. Then it turned out that medical societies had similar concerns.

Rather than have each of them create a system, the Alliance took on a role of orchestrating all of the interests, including some interest from the FDA and ONC in creating an electronic health record problem reporting system. That’s how it came into play.

Our role in it, in addition to having a seat on the iHealth Alliance board, was really in network operations — in running the servers, if you will, which didn’t seem like a very complicated task. Since business partners we rely on for our core business were interested in it, it was easy to say yes. It frankly turned out to be somewhat more complicated than we originally thought, but now it’s up and available.

What is the relationship with FDA, AHRQ, ONC, and some of the existing tools, such as the MAUDE database?

AHRQ has a thing they call the Common Format, which is a common set of questions for reporting patient safety-related events. They try to promote the use of their common format so that there can be some standardization of patient safety across multiple different reporters or reporting systems. We incorporated the AHRQ common format.

The role of the FDA is pretty much what is expressed in the press release, which is that they’re very supportive. They’re interested in seeing information about EHRs and issues associated with EHRs.

The exact relationship with the FDA and electronic health records, at least from my reading of the press, isn’t clear. Our goal is not necessarily to clarify that or be a spokesperson for the FDA, but we appreciate their support and their promoting the idea of reporting of electronic health record vendors participating in EHR Event.

They currently have some voluntary reporting associated with EHRs, but it is far from ubiquitous. At least based on my understanding of it, it’s more focused on inpatient systems, where EHR Event pretty much looks at inpatient or outpatient systems. One of those areas of perceived growth is in in the outpatient — the typical doc practice.

I’ve now exhausted my knowledge of what’s going on inside the FDA, but we certainly appreciate their support.

I think that Dr. Blumenthal and ONC did a great job of explaining their position. I think any network or new system that’s being rolled out appropriately has some kind of feedback loop, so they were quite supportive. I don’t know if you know if any kind of adverse reporting is going to be a part of Meaningful Use requirements, but if it is, it would certainly make sense. EHRs have great potential. It’s not just because they turn paper into electronic format, but they represent a communications platform to US providers.

To the extent that the federal agencies that either have systems in place or algorithms in place like AHRQ are generally supportive of the effort. This is sort of a “more the merrier” kind of thing.

Assuming ONC doesn’t mandate the use of reporting and FDA hasn’t had much luck in getting people to report into its database, how will it be different with EHR Event?

To my knowledge, the FDA hasn’t had any outreach at all to providers — docs like me. If they made the call, I missed the message. I don’t know how they’ve gone about other reporting initiatives. I certainly know what they’ve done with device and drugs and MedWatch and that kind of thing. From my standpoint, it’s comparing something that doesn’t exist.

I think the reason we got reports rolling in the door within 24 hours, frankly, is because of the relationship that exists between the liability carriers or medical societies and their insured or their members. Actually someone had called and said, “Why isn’t the FDA doing this?” I assume what they were saying is,  “Why hasn’t the FDA created an EHR adverse event reporting system.”

There’s probably a lot of political reasons. I don’t work for the FDA and I wouldn’t speak for them, but I have had a medical license in the US for the better part of three decades and I would say that for any federal agency to take any action is not always a quick process. I don’t know all the steps, but I imagine there would be public notice and this and that, perhaps some politics involved. I’m not an expert. I don’t work for the federal government and I suspect I never will.

There’s also the reality that most physicians, I think, if you ask them, would indicate that they would be more comfortable with a system that is operated largely by their professional liability carriers and their medical societies with whom they have great trust and a longstanding relationship.

Do you think those insurers and medical societies will mandate, to some extent, reporting of errors to back their members?

I don’t think that a medical society has any authority to mandate anything of members. Again, I don’t work for them and wouldn’t speak for them, but how would they do that? Docs practice medicine based on state licensure. I supposed you could talk to the state medical boards, but I think that’s a long slog.

The other problem, of course, is that even if someone mandated that you reported EHR events, how would you actually enforce that? How would you know that they did it?

I don’t look at this so much as a mandate. I look at this as liability carriers are in the business and regularly reach out to their insured doctors saying, “These are the kinds of activities that we suggest you do and these are the kinds of activities that we suggest you avoid.” Having written checks for hundreds of thousands of dollars to professional liability carriers in my years of practice, I can tell you that you know that the only goal they have is to improve patient safety and protect your liability.

I think mandate is probably not the right word. I think educate and encourage and promote are the kinds of things that medical societies and liability carriers are doing and will continue to do.

FDA is supportive and interested, but not to the point they did it themselves, which would seem to be something they would have done if they were all that interested. Is there a plan to share the information that’s collected in EHR Event with FDA?

I guess the premise of your question I’m not in agreement with, which is that if the FDA were interested, they’d do it. I’m sure the FDA has a lot of things they’re interested in. Whether they do it or not probably has to do with budgets and politics and the reality of what it would take to actually get something going.

Again, I’m not an expert in government process, but I’ve been around long enough to know that the federal government doesn’t turn on a dime. The FDA has to follow the rules of the federal government, which has a fair amount of process around it, at least as far as I understand.

But to your question about the FDA learning and getting smarter from the EHR Event reporting system, as a federally designated PSO, there’s some contractual requirements for any third party — whether they be federal, private, not-for-profit — to get reports from the PSO. I assume that the FDA, based on our discussions with them, will enter into an agreement that’s dictated by AHRQ for access to the kinds of reports that will come out of EHR Event, as will liability carriers, as will medical societies, as will regional extension centers.

The big parties that you didn’t name are the vendors of the systems that are having errors reported about them. What involvement have they had or will they have?

They have the option of participating, which means they sign an agreement with the PSO and reports that are pursuant to their system are routed directly to them. But they certainly don’t have to do that. Everyone who participates in this is doing it on a voluntary basis.

So far, the response has been very favorable. I saw the quote in the press release from the e-MDs folks. But I think all of them understand that the systems aren’t perfect.

Probably what we’re seeing more often than not, the real challenge with EHRs like any technology, turns out to be some form of user error. “I didn’t know it would do that,” or “I didn’t know that it pre-populated that,” or “I didn’t know I shouldn’t cut and paste,” or “I wasn’t paying attention to this,” or maybe the user interface was a little confusing. Actual software errors appear to be the exception rather than the rule as it relates to EHR events. That’s at least as I understand it. I don’t get to see the reports because I don’t have that right within the PSO structure.

Anecdotally, from hearing the kinds of issues that liability carriers had talked about that they had seen, and hearing it from the high level of reports that have been coming in, they’re actually more frequent that you have a learning curve type issue, which is I think anticipated and the point of the exercise, which is most liability carriers promote electronic health record adoption, but although they promote it, they also know that these are new systems and new workflows and there’s a learning curve. The interest is in getting as much information as quickly as possible.

Is this is a business? Is there a revenue stream? Does PDR Network make money from this service?

I wish I could say yes, but the truth of the matter is that it’s more or less pro bono work that we’re doing on behalf of partners whose relationship is important to us. There’s other types of adverse event reporting that we’ll be rolling out over the next year that you can actually make money from. We certainly aren’t smart enough to figure out how to make any money off EHR event reporting.

Fortunately, because we are in the business of collecting and disseminating information and run networks and servers and integrate with EHRs and do all that stuff anyway, it’s not a heavy burden for us. But it is not a revenue center. I’m reasonably good at figuring out how to make money, but I haven’t cracked the code on this one.

If I’m a provider, what’s the benefit to me to submitting a problem report?

I guess the same as if it was an adverse drug reaction. Sometimes I have to say that just knowing docs, sometimes it’s sort of being a doc, right? You raise your hand when you see a problem. You certainly don’t make any money for doing it and not everyone will report every problem, but it’s amazing how frequently docs do the right thing even though they’re not getting paid to do it.

I think in this case, there’s probably a general feeling, at least among the target audience, that if nobody says anything about a problem, the problem never gets fixed. The analogy that I would make is that there are 500,000 adverse drug events reported into MedWatch every year, and to my knowledge, nobody makes a cent from reporting them, but they report them anyway. My view is this what docs do. They often do the right thing even though they’re not necessarily getting paid or otherwise not getting some benefit for it.

If I’m a doc and submit my incident, what happens next? How does that help fix the problem?

It goes in the PSO. Those who have the right to do that, which are only a handful of people, will create reports. Other physicians will know that inpatient hospital systems are having these kinds of problems or those kinds of problems, or maybe there’s a software problem, although again more often than not, it seems to be user error type things. The reports will go to groups like professional liability carriers.

I don’t know what the FDA would do. I assume they’re going to access PSO reports because they’ve indicated that they plan to, but the liability carriers and the medical societies and regional extension centers will turn the reports into education programs. There’s an effort to create CME programs that the liability carriers will promote to docs, the specific CME program for docs who want to adopt electronic health records. Oftentimes those programs from liability carriers are tied to patient safety credits that actually reduce liability carrier premiums. But most of the focus is educational.

As for the reporting physician, they’ll get a response back, “Thank you for the report.” If they wish, they can enroll in a monthly update newsletter sort of a thing that will be an extract of the PSO reports — here’s how many patient safety-related reports we got this month, here’s some high-level stuff — although PDR Network, at this point, isn’t planning on creating any CME programs from this. But we know that some of our partners are and we’ll probably help distribute links to the CME programs.

With the FDA’s drug reporting system, there would be capability to immediately trigger some sort of a black box warning or recall. If I’m a provider submitting to this database, do I have any assurance that other providers using the same system, if it’s a system problem, will find out what I reported or that I’ll find out what they reported?

There’s a number of pieces to that. First of all, if you’re familiar with the MedWatch system, it’s quite a bit more complicated than what you described. There’s not really lightning-fast turnaround from MedWatch reports. Black box warnings have to go through an entire process before they come out. Some of them may be triggered by MedWatch, oftentimes not. Often it’s based on post-market studies or some other piece.

Secondly, 95% of of MedWatch reports don’t come from providers directly. They come from the manufacturers. Out of 500,000 that the FDA gets, only 5%, one in 20, are directly reported to the FDA. Most of them go to the manufacturers, who bear the responsibility for chasing down the information and getting all the facts and details. The FDA is certainly not staffed to do all that legwork and the manufacturers have a regulatory requirement to do that.

That kind of infrastructure is not in place for EHRs, or least that I’m aware of. Perhaps it will be someday. I don’t really know what the regulatory environment is going to be for EHRs.

If I have a problem with an EHR and I report it, there’s two pieces to it. One is that my vendor has a responsibility, if it’s a problem with their system, to correct or improve the systems and notify other people of the problem. If they didn’t have a regulatory reason to do that, they’d certainly have a liability reason to do that. We will route those reports dutifully, but we’re not a regulatory agency and we’re not attorneys.

What we can do is get the reports and get them into the hands of groups like liability carriers, medical societies, and regional extension centers and then let them reach out their physicians and educate them. If it turns out that it’s a specific software problem, most of the burden for that will fall on the vendor.

I’m sure that will come up more frequently as an education issue, so how do you educate docs? Part of that is the vendor’s responsibility, part of it’s the liability carrier’s responsibility, part is the regional extension center. That’s why they get, whatever it is, a third of a billion dollars to educate docs about electronic health records.

From the standpoint of who bears the responsibility of acting on a software problem, that will largely be the EHR vendor. They have that responsibility now. Hopefully we can add to the flow and speed of information to them.

Anything else?

Most of folks who’ve called, whether they be press or … we’ve heard a little bit of, “This is overdue.” [laughs] I’m sort of like, “OK, now here it is. Sorry we were too slow.”

I’ve heard a fair number of people say, “The federal government should be doing this” without much knowledge of what it would take for the FDA or some other agency to create a system. There was a real concern, frankly, among the liability carriers that any involvement by the federal government might actually reduce the amount of reporting that occurred. I certainly heard it. It resonated with me as a doc. It’s one thing to report something to my liability carrier or medical society, but as soon as you get the federal government involved, someone’s going to say, “I’m less likely to report that because I just don’t want to deal with it.” 

I think there are challenges associated with it. I think this is a point along the way on education related to EHRs. It’s not a regulatory effort. The federal government is going to do or not do whatever they’re going to do. This is some federal government support and cheerleading and participation, but this is not a mandate from the federal government. Whether that will ever occur or not I really don’t know.

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From SpaghettiCode: “Re: GE. The recent reorganization confirms that they made a huge mistake with the $1 billion IDX acquisition. After many attempts to defibrillate the CareCast business, they finally orged the legacy business under the EMR side and key execs were moved out.” Here are snips of what I had to say about the acquisition in September 2005. I mentioned collaboration with Intermountain Healthcare as a positive (that’s gone nowhere that I’ve seen), although I was focused mostly on the inpatient apps:

If you’re an optimist, you might assume that a mega-conglomerate like GE will pump R&D into the old warhorse IDX products, make them wonderful in a way that a small player like IDX never could … Pessimists would ask for even one example where that has ever happened, including with prior GE acquisitions … Much of CareCast was written 20 years ago by that little band of Phamis employees in Seattle. Does it contain enough intellectual property or technical excellence such that a quick spit-and-polish treatment will make it a world-beater? I don’t think so, but maybe GE does … Conglomerates have a way of screwing up products (McKesson, Siemens, and maybe even Misys.)… IDX needed a white knight. It was devaluing itself day by day, with an embarrassing UK performance and no CareCast sales. The acquisition announcement mentioned that IDX needed a partner with global reach, but it had already created its own opportunity in the UK and blew it. Cerner and Epic were threatening to run the table on them … Somehow HIT companies seem to lose their passion when swallowed up by multinational firms selling everything from light bulbs to Jay Leno. That’s kind of sad, don’t you think?

From Boston Patient Advocate: “Backlash is building by patient advocates against self-appointed ePatients who make a living selling a modified version of their story. They often fail to mention that they misunderstood information they found online, weren’t really as sick as they thought, or that it was their doctors that found the correct treatment or gave them an RX for online communities. Then again, we love myths of the little guy in America.” I ignore news stories in which reporters try to mask their opinionated reporting with phrases such as "debate rages”, “some are questioning”, or “pressure is building”. In other words, I don’t doubt your sincerity, but I’d like to know specifics behind your “backlash is building” assertion. As we say in the medical world, “In God we trust … others bring your data.”

From The PACS Designer: “Re: Continuity of Care. TPD is happy to see that HHS has embraced the concept of Continuity of Care as it is laid out in the ASTM Continuity of Care Record (CCR) and requires providers to include it in their EHR certification submission request. Healthcare organizations will have to include the ASTM CCR in their discharge process to get their EHR certified, and at the same time, we’ll have a chance to transfer information between providers to help eliminate duplication of procedures and reduce medical errors.”

Eastern Maine Medical Center (ME), preparing for a three-day lockout of striking RNs by bringing in replacements, will shut down all of its clinical systems except the eMAR and go back to paper. Here’s a hint for those living near Bangor: go somewhere else if you’re sick this weekend. Or, if you’re one of those “EMRs are evil” naysayers, this is your rare chance to do some Maine-based medical tourism to receive critical, elective medical care at a paper-based hospital.

The usual list of stuff you can and should do here: (a) subscribe to the updates so you aren’t embarrassed by the idiot three offices down who learns breaking news before you and rubs your nose in it; (b) use the search function to amplify your HIT intelligence in real time; (c) Friend or Like us on Facebook or connect with us on LinkedIn so that we may both pretend to be more popular than we probably are in real life; (d) click some of the sponsor ads to your left to see what they’re up to; (e) visit HIStalk Practice and HIStalk Mobile to get mostly different news particular to physician practices and mobile health, respectively (and sign up for those updates, too, if you want to stay on top of stuff).

Listening: the remastered 1978 debut solo album of former Pink Floyd leader David Gilmour, recommended by a reader. I appreciate that: I really like his music and respect him for his charity work, but I never think to recommend his solo stuff, which at that early stage of his career was kind of Pink Floyd Lite (not necessarily a bad thing). He’s supposed to be reuniting with former bandmate Roger Waters at one live performance of The Wall, which is on tour now.

Forbes runs maybe the weirdest, worst HIT article I’ve seen, apparently intended to be a cheerleading piece for Allscripts. It claims that open source is about to make its healthcare debut, courtesy of Allscripts (meaning Allscripts Helios, previously Eclipsys ObjectsPlus, which has been around since the 1990s). It claims that many tech vendors have gone out of business because they “chose to cling to closed, proprietary software or hardware” (care to share names and proof of the cause of their demise?) It mumbles something about the need to interface a “computerized drug order system” to an EHR (huh?) It says Judy Faulkner’s statement that you can’t mix and match vendors is an Allscripts advantage, failing to notice that Judy’s company (whose industry-leading product is closed and proprietary) had pretty much killed Allscripts (nee Eclipsys) Sunrise single-handedly since to install Sunrise, unlike Epic, required mixing and matching vendors to cover the many hospital areas it doesn’t address. To top it off, the article uses the old Allscripts logo pulled from Wikipedia instead of actually checking their site directly to get the current one. All of this was a lame attempt to create an interesting, insightful article around an October press release in which Allscripts announced that it would create an apps store for the former Eclipsys Sunrise, which has nothing to do with open source in the first place since nobody’s seeing and contributing to anybody else’s source code (extensibility isn’t the same as open source). It’s just amazing to me how many people write authoritatively but wildly inaccurately about healthcare IT (usually spinning entire articles around press releases and a couple of Google searches) who have never worked a day in either healthcare or IT except as a cheap-seats spectator. Caveat lector.

A little more than half of respondents to my poll say they’ve seen “hold harmless” contract clauses, although I liked the excellent comment by NotQuite, who pointed out that a “hold harmless” clause is not the same as a “limit of liability” clause. I’m no lawyer, but that sounds legally insightful. Gotham City CIO requested the new poll to your right, for hospital people: does your organization block access to outside e-mail services by physicians using hospital PCs? They block access to Gmail, Hotmail, etc. at his place to prevent the possible transmission of PHI via untrackable e-mail services, which is apparently common in other industries. The new CEO is getting heat from the docs even though they can still use a dedicated PC in the doctors’ lounge or their own PDAs to get to those services. Feel free to add any comments to the poll that would help our CIO colleague.

Thanks to new HIStalk Platinum Sponsor Orion Health. The international company, based in Auckland, NZ and with US offices in Santa Monica and Boston, offers solutions that include an HIE platform, the Concerto Physician Portal with single sign-on to provide a single patient view across multiple clinical systems, the Rhapsody Integration Engine for inter-system messaging and integration, the Rhapsody Connect solution for connecting to public health agencies, and the Symphonia developers’ messaging system for rapid system integration. The company just reported an 80% increase in revenue for the first half of the year and has 22 HIE sites in 12 countries. In the US, Orion’s HIE solution was recently chosen by the Wayne State University Physician Group and Maine’s state HIE. Rhapsody 4 just came out with new support for SOA integration and Web services, with Philips choosing it as its integration tool. The company offers a much broader product line than I knew about (EHRs, registries, whiteboards, bed management, chart deficiency, etc.) so feel free to cruise over to their site to learn more. Thanks to Orion Health for supporting HIStalk.

McKesson’s Horizon Clinicals earns ONC-ATCB certification through Drummond Group.

Marty Mercer is putting together a HIT sales training class for newbies and is looking for input from industry long-timers. You can help out by completing his short survey like I did. He’ll send me the results afterward since I think they might be fun to review here.

Inga emulates Weird News Andy with this link: doctors warn of the psychological dangers of social networking after an 18-year-old boy’s asthma attacks are found to be triggered by looking at the Facebook profile of his former girlfriend. His mom measured his peak expiratory flow before and after.

The Rural Nebraska Healthcare Network starts construction of its Nebraska panhandle fiber optic network that will connect nine rural hospitals and their clinics.

Vendors beware: patent troll Acacia Research buys 11 patents for wireless physiologic monitoring. Let the nuisance lawsuits begin.

A company that has developed an electronic parking space finder wins at the IBM SmartCamp World Finals in Dublin, but a couple of HIT-related companies were in the hunt: CareCloud (Web-based practice management and revenue cycle tools for practices) and Sproxil (checks the authenticity of drug products via SMS messaging, primarily in developing countries).

Speaking of “cloud”, everybody’s hopping on that bandwagon with as much self-serving enthusiasm as they did previous sloppily defined fad terms (ASP, EHR, clinical transformation). Since HIStalk runs from a Web host, I think I should start referring to myself as a “the leading cloud-based business intelligence and collaboration platform for the healthcare technology and life sciences sectors.” I’m thinking investors will line up at my door dripping saliva at the chance to throw money at me. 

St. Paul Heart Clinic (MN) closes its doors, with its 36 cardiologists going to work for either Allina or HealthEast. A key reason, as explained to patients, was the ability to share a common EMR.

Orlando Health (FL) offers local medical practices a discount on GE Centricity.

Weird News Andy likes this story: the call center for TennCare is a women’s prison, as discovered and reported by the overly dramatic and pot-stirring local TV station anxious to use that “breaking exclusive” graphic typically rolled out when someone’s flat tire backs up traffic almost a quarter mile. WNA likes the eloquently expressed consternation of one Leon Rippy, apparently goaded randomly by the TV station to weigh in on the issue of the potential but entirely theoretical impact on patient privacy: “That ain’t good.”

Coliseum Hospital (GA) investigates a former employee who dropped by to attend a nurse’s birthday party, then logged into the hospital’s computer system with her still-active password and looked at patient information. She’s caught by hospital security, which was apparently more effective than IT security considering the terminated employee’s credentials had not been inactivated. Assuming HR let them IT, of course (and trusting the competency of any hospital’s HR department is indeed foolhardy).

A blog entry in The Economist says HITECH could be as big a bust as NPfIT in the UK, suggesting that France provides a better model:

Maybe the Americans (and the British) should swallow what the French would term their “Anglo-Saxon” arrogance, and look at France. A French citizen presents his credit-card sized Carte Vitale to the doctor or the pharmacist or the hospital and everything—for example, the date and dosage of a prescription—is recorded by a national computer system (which also usually deals with payments). Visit another pharmacy or doctor in another town, and the patient’s details are automatically available. Perhaps this helps to explain why the World Health Organisation in 2000 (the last time it did the exercise) put France at the top of its rankings for health care. By contrast, Britain came 18th and America 37th. Mind you, it may also explain why the French pop more pills than anyone other than the Japanese.

E-mail me.

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Meaningfully Using Industry Buzzwords at Home

With the HITECH and ACA legislation and rules. many new phrases and words have been introduced and old ones have gained additional prominence. I have found that these phrases and words also have use in several situations at home. See some examples below.

Death Panel. Your sixteen-year-old son returns home drunk at 2 a.m. after a long Saturday night. He parks the car sideways on the lawn. You and your wife are sitting on the couch in the living room waiting for him. As far as he is concerned, you and your wife are a death panel.

Stimulus funds. Your spouse shows you the new clothes that she bought. You like the clothes, but are mystified by the apparent need for new clothes when the old clothes aren’t that old and you liked those too. Moreover, the clip-on tie you had in third grade is still good and forty years later you still wear it from time to time. You don’t realize that the household income is really a stimulus fund to keep retailers employed.

Data exchange and interoperability. Your daughter (a senior in high school) wants to spend the weekend with her new boyfriend, who is a freshman at a local college. You, recalling quite well what’s always on the minds of young males, say “No.” Your daughter protests, “But Dad, it’s not what you think. I will be staying at his cousin’s (who is a girl) dorm room. Nothing will happen!” You think – I don’t believe that for a second – and again say “No.” You and your daughter are engaged in data exchange, but there is no interoperability going on.

Certification process. The first time you met him, you instantly liked your daughter’s new boyfriend. The second time you met him, you engaged him a lengthier conversation and discovered that he is a moron. The third time you met him, he had been invited for dinner and was clearly stumped by the role of the napkin. You decide that you and your daughter need a new boyfriend certification process.

Meaningful Use. You notice a dead tree in the yard. You find your chain saw and install a new chain. You assure your wife that you know how to fell this tree so that it won’t hit the house even though the tree is close to the house. You miscalculate and tree branches take out the kitchen window. Your spouse is less than impressed. You are clearly not a Meaningful User of advanced technology.

Bundled Payment. You are arm-wrestling with a new car salesman over the price of a car. He mentions all of the features that come with the base price – seats, steering wheel, front window, headlights, and an engine. He informs you of all of the extras – roof, glove compartment, and radio. You want the extras for free. Plus you want a sun roof, Jacuzzi, and toaster. You and he are negotiating a bundled payment.

The great thing about words and phrases is that they have so many uses and meanings.

John Glaser, PhD, FCHIME is CEO, Health Services of Siemens Healthcare. He describes himself as an "irregular regular contributor" to HIStalk.

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From Karen: “Re: Meaningful Use: Doctors Have No Choice. Written by my husband, but still true!” Jim O’Connor, MD of MDcohort makes the argument that Meaningful Use isn’t as voluntary as it sounds, offering as evidence: (a) CMS will start imposing penalties on EMR non-users in 2015; (b) private insurers will tie MU to their P4P programs; (c) MU will apparently be made a requirement for renewal of board certification; (d) states can impose their own penalties, possibly even requiring MU for medical license renewal.

Ed Marx has a lot of fans here, so if you want to read more from him, he has posted a special article about his relationship with his daughter on Texas Health Moms, a site managed by his employer, Texas Health Resources.

Listening: new from Guster, which I’ve mentioned before. Solid, harmony-driven alt-pop (kind of R.E.M.-y to me), but they’re also funny: they enlist fans to sell CDs and sometimes open their own shows in disguise. If you’ve heard any of their stuff, it was probably Satellite.

Timing is everything: just after Aurora Health Care (WI) announces plans to eliminate 175 jobs in a cost-cutting effort, the press gets wind of the $8.2 million its former COO was paid upon his retirement last year. They make the standard excuses (accrued benefits, they have to compete with for-profits anxious to hire away executives who have spent their entire lives in healthcare, etc.) but I note that they paid the CIO $739K and the CEO got over $2 million according to their most recent tax filings. They have 30,000 employees, so maybe that seems reasonable by inflated non-profit salary standards these days. We may suck at population health in this country, but we lead the world in the executive-to-grunt compensation ratio.

The Aurora guy, who wasn’t even the CEO, made even more than Cerner CEO Neal Patterson, who took home $3.3 million in 2009, a little less than he made in both 2007 and 2008. And speaking of Neal, I’m clearly not at his level of business acumen because this just seems weird: he and Cliff have renamed their soccer team from the Kansas City Wizards to Sporting Kansas City. They’re doing some kind of membership thing, apparently, but that name sure make a weird fan cheer.

Think this will reduce healthcare costs? Mayo Clinic is building proton-beam cancer treatment centers at its Minnesota and Arizona locations. The price tag: $370 million.

On the sponsor-only HIStalk Jobs Page: Director Technical Readiness, Implementation Consultants and Project Managers, Healthcare Consulting Leader, Account Executive. On Healthcare IT Jobs: Program Manager IT Implementation, HED AdminRX HArx Remote, Implementation Engineer – Integration, Epic Inpatient Opportunities.

A New York Times article describes the problems San Francisco Department of Public Health is having with its $11.2 million Avatar EMR from Netsmart. Conversion problems caused delays in Medi-Cal payments to individual therapists and some therapists and social workers are complaining that using the software is eating into time for patient care. A post-implementation audit showed that mental health services volume dropped by 55% and substance abuse by 32%, with the deputy financial officer concluding that, “It’s pretty clear none are getting Avatar.” A social worker agreed: “This is not the job we accepted when we chose to do clinical work for the city.”

Strange: a Walmart pharmacist is disciplined by the Maine regulatory board for dispensing zolpidem instead of Zoloft to a patient. Before his own drugstore went bankrupt, he was also found to have overbilled the state by $1.6 million. The odd part: he’s a state representative in line to become the next speaker of the House.

The VA will develop two prototypes of Aviva, a virtual implementation of its VistA system and its apparent replacement, according to its just-released Fiscal Year 2010 Performance and Accountability Report. I thought they already had demonstrated the prototype earlier this year, but maybe this is something new.

Verizon will offer free credentials to providers in starting in January that will allow access to its Verizon Medical Data Exchange. It offers a provider portal, a secure inbox, and connections to the Verizon Health Information Exchange.

E-mail me.

HERtalk by Inga

From MrSoul: “Re: Kindle It. Encourage your readers to tell the publisher of Connected for Health to publish in Kindle so we can read it on our iDevices! There is a link on Amazon to do just that and then they can have this great resource always on hand.” I would think a book like this would already be in digital format!

West Penn Allegheny Health System selects athenahealth’s RCM service for its 600-doctor physician organization. They are apparently replacing GE’s RCM product. On the EHR side, they use Allscripts.

Venture capital firm OpenView Partners makes a minority investment in Prognosis Health Information Systems. Prognosis CEO Ramsey Evans says that OpenView’s investment will allow the company to “move forward and take our business to the next level.”

North York General Hospital in Toronto goes live with 300 order sets, using tools from Zynx Health’s ZynxOrder and integrating them into Cerner EHR.

CMS says the error rate for Medicare fee-for-service claims in 2010 dropped to 10.5%, or $34.3 billion in estimated improper claims payment. That’s down from 2009’s $35.4 billion in payment errors. I guess we should all be thrilled that CMS is getting better, but I am stuck thinking about all the better ways that $34.3 billion could have been spent.

The Stone Center of New Jersey IPA signs a 15-month contract with iMedicor to connect its 120 urologists into iMedicor’s National Health Communications Network.

Central Maine Healthcare eliminates 20 jobs as a result of outsourcing its medical transcription to Precyse Solutions. Precsyse offered positions to all 20 employees, though only 10 accepted. The move to outsourced transcription is part of a $11 million cost-cutting initiative.

Health management company Continuum Health Alliance contracts with Ignis Systems to provide integrated lab orders management for its EMR application services.

The Indian Health Service (IHS) commits to a $3.3 million contract with Orchestrate Healthcare and Vangent to plan, implement, and support the national deployment of the IHS HIE, enterprise MPI, and NHIN capability. Vangent’s HIEOS open source software will be used to establish connectivity between IHS facilities and the NHIN.

Miami-Dade County Commissions tell Jackson Health System to cut ties with the company handling its international marketing after a recent report details excess spending for such things as flowers and birthday cakes ($7,000), local meals ($37,000), and limo rides ($12,000).  An additional $6,000 was spent on a Royal Caribbean cruise for five of the marketing firm’s senior executives and their families. Foundation Health Services was the organization handling the health system’s international marketing efforts. It’s a not-for-profit, so I guess the execs had to get their perks from somewhere.

Teleradiology service provider Century Digitec Services goes live on eRAD’s hosted teleradiology software platform.

A study of 15 IDNs leads the Government Accountability Office to declare that EHRs can improve the quality of healthcare, making patient information more readily available and improving communication and coordination between providers. Providers still face challenges in terms of maximizing their use of EHRs, including limitations on sharing patient records outside their health system.

New on HIStalk Practice this week: 15 HIT vendor execs share what their company is doing to help physicians qualify for Meaningful Use. Evan Steele of SRSsoft provides commentary on the Meaningful Use challenges for specialists. Fun details on the eClinicalWorks national user conference, including a party pic with a uniquely attired CEO Garish Navani. And, the EHRevent patient safety reporting system. There’s a bunch of other good stuff as well, none of which you will find on HIStalk. Make sure you remain smarter than your co-workers and take a read.

"But Inga,” you say. “I’m too busy, just give me the highlights.” For grins and because I believe it’s important stuff, here’s a short summary of what the HIT vendor execs had to say about helping providers reach Meaningful Use:

• Several are incorporating dashboard tools or similar reports to help providers assess EHR usage based on Meaningful Use requirements.
• Most are offering webinars; many are setting up regional meetings to educate users on what needs to be done; most have online tools available; and, most mention the option for personal assistance, either on-site or remotely.
• Only a couple mentioned working with regional extension centers to share expertise and help beef up local infrastructures.
• Allscripts and athenahealth remind users that they offer Meaningful Use guarantees.
• Not surprisingly, some of the vendors have nicely packaged answers, which to me suggests (a) the vendor has established a clear-cut plan,  or, (b) the vendor has a great marketing department, or (c) both.
• A couple are short on specifics and don’t say much more than vendors needs to help physicians in the process.
• Jonathan Bush of athenahealth wins the prize for the most entertaining answer.
• Evan Steele of SRSsoft  has the most unusual reply, saying the company has spent considerable time reviewing the requirements and are helping its clients make an informed decision as to whether participation is right for the individual practice.

Sponsor Updates

• Encore Health Resources had a contest to see who could do something creative with 100 Legos in celebrating the hiring of the company’s 100th employee. Above is one of the submissions by employee Paul Murphy, who went with a multimedia strategy with an Ivo bobble head approach. I was thinking that I could have cheated and added extra Legos and come up with something spectacular.
• Nuance Communications introduces Nuance Transcription Services, which combines the eScription speech recognition platform with medical transcription and editing services from two of Nuance’s newly acquired companies, Outsource Solutions and Encompass Medical Transcription.
• MEDecision earns NCQA HEDIS software certification for its Alineo Clinical Intelligence Rules 2.4.0 and 2.5.0 programs.
• CareTech Solutions launches CareWorks 4.0, which includes enhancements in audit reporting, directory utilities, and several mobile modules.
• Fast-growing EnovateIT will move its headquarters from Ferndale, MI to Canton. The company’s mobile and wall-mounted computer workstations are used a third of the hospitals in he US, with last years $19 million in sales expected to reach $35 million this year.
• dbMotion appoints Prematics president and CEO Keving Hutchinson to its board of directors.
• 3M Health Information Systems and IQMax partner to offer 3M’s coding and documentation tools using IQMax’s mobile healthcare platform.
• Hayes Management Consulting will provide its Legacy Application IT Help Desk services to Moses Cone Health System as they transition from GE Centricity Enterprise to Epic.
• South Australia’s Public Health System names Allscripts its vendor of choice to provide EHR to its 80 hospitals. The agreement to purchase Sunrise Enterprise 5.5 is subject to contract negotiations, with final approval expected during the first half of 2011.
• Sage is named a group purchasing EHR vendor by PA REACH, which will offer Sage Intergy Meaningful Use edition to providers at a discount.
• A new KLAS report on ED solutions names Epic and Wellsoft as tying for the top spot.

E-mail Inga.

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Jon Phillips is founder and managing director of Healthcare Growth Partners.

Explain what you do. I don’t really understand it except I figure it’s lucrative.

We are an investment bank focused on healthcare technology and services. What we do is analogous to being a real estate agent for companies where we help companies sell themselves, or we help companies buy other companies.

So a good bellwether of how busy that market is would be how often your phone rings. Are you finding that it’s a lot busier now than it was?

What’s interesting is that it is a lot busier now, although the best bellwether is still the number of deals that actually get done. One thing that’s just a fact of life in the mergers and acquisitions business is that when you start a process, you don’t always finish it.

What you see are a lot of situations where companies decide to sell themselves and they don’t get a buyer for reason A, B, or C. It could be that the price that the market thinks that they’re worth isn’t what they think they’re worth and so they decide to wait. Or, it could be that they just don’t get interest at all. Or, it could be that they decide they’d rather do something different — that maybe they’d rather raise money instead of selling themselves, go buy something.

The key challenge in terms of this business is getting things to the finish line. What you’re seeing in the market as a whole is a significant uptick in terms of the number of transactions getting done as compared to a year ago or two years ago, both in terms of the number of deals and the value of those deals.

Where we sit right now is that there are more deals trying to get done than deals that have gotten done, and so you have a lot of folks who haven’t been able to get things done and there’s some interesting dynamics that go along with that.

Do you think it’s because companies that are trying to sell are seeing a top in the market and figure, “Hey, now’s my chance, although I’ll keep going if it doesn’t work out” or do you think they’re desperate, like, “I’ve got to do it now or it’s never going to happen?”

Early in the year, a lot of those were driven by the fact that healthcare mergers and acquisitions activity emerged faster than other sectors. What you saw was a lot of individual shareholders or private equity firms or venture firms looking to sell companies because healthcare was a hot area. Healthcare IT in particular was especially hot, and so you saw a lot of books come out early in the year. Early in the year was driven by, “Hey, the market is hot, and it’s getting hotter. Let’s go out and get a good value for our business.”

Later on in the year, what you started seeing is a little bit of a different trend, where you have some folks who are pulling the trigger on an exit because of tax-related concerns. There are absolutely companies out there that have decided to sell because their sense is that capital gains tax rates are going to go up next year.

Even if capital gains tax rates don’t go up next year — if there’s some type of an extension of the tax breaks — capital gains rates will go up at some point down the road. That does have some impact on decision-making, because even just a five percentage point increase in the tax rate, if you’re doing a $100 million deal, that’s potentially $5 million of more money that you’re paying to the government on January 1 as compared to December 31. That’s been another driver.

The other thing that you’re starting to see — and I still think it’s an early phase of this — but you’re starting to see this phenomenon that I thought we would see a while ago. Companies that are somewhat weaker, that aren’t growing as quickly or aren’t growing at all, or don’t have as strong of a product set and product capability — some of those companies are finally saying. “You know what? Either this market is moving, it’s not moving fast enough, or we’re not moving fast enough in terms of our internal growth to really dig our way out of our current predicament, so we’re going to sell because it’s probably not going to get any better.”

That’s something I think we’re going to see more of, because the way that I characterize the M&A market right now is it’s really kind of a world of haves and have-nots, if you will. Normally what you see in terms of valuation multiples — the multiple of revenue or the multiple of earnings for which a company sells — normally you’ll have a normal distribution of that. If the median multiple is 10 times EBITDA, then you’ll have a bunch of deals happening close to 10 times EBITDA, you’ll have a few deals happening at 15 times EBITDA, and a few deals happening at five times EBITDA.

Where the market is right now is much more in kind of a bimodal distribution. You have a some deals happening at very high multiples, and you have a bunch of deals happening at much lower multiples. You don’t have a lot going on in the middle. I think as this M&A market continues to mature and as the cycle continues, I think you’ll see more activity in the middle. You’ll see more kind of eight to 10 times EBITDA deals happening, but right now, it’s really at the extremes.

I would assume that the number of deals on the high end probably has always been the same. Does that mean more people are unloading for less than they expected or less than historically has been the case?

There are certainly a few more deals on the high end than over the last couple of years at least, but it does mean that more people are unloading at the low end.

Some of that comes back to putting yourself in an investor’s shoes, where you’re an investor in a company that is $3 million in revenue, and you put money in it maybe five years ago, maybe seven years ago. Just to use hospitals as an example, although it would apply to the physician software, it would apply to payer software in 2008, when the hospital spending really froze because of the capital markets early in the year in terms of the auction rate securities and the lack of liquidity for hospitals, later in the year as the market downturn occurred when hospital spending slowed, then the growth source for a lot of these companies slowed down.

But coming into 2009, you had this grand stimulus package that was going to drive all this growth in healthcare IT. Well now it’s a year and a half later, and a lot of those companies that were doing $3 million in 2008 did $3 million or maybe $3.1 or $3.2 million in 2009, and did maybe a little bit more than that or are going to do a little bit more than that in 2010. But from an investor perspective, they’re saying, “How long am I going to have to wait for this market?”

While there are certain subsets that are seeing tremendous growth, my opinion just from talking to a lot of different companies out there, a lot of companies are having a tough time just getting decent growth because resources are geared toward making sure that you can get your Meaningful Use dollars. Resources that aren’t geared toward Meaningful Use dollars are severely restrained, and they’re going to be focused on those things that are going to drive the highest ROI for the hospital.

It’s very competitive for those capital dollars. As a result, demand is soft, and investors say, “Well, do I want to count on demand improving in 2011? I’m going to have to invest more. I’m going to have to wait a few more years.” Or maybe it’s not throwing up the white flag, but it’s certainly, effectively surrendering and saying, “All right, I didn’t do well on this one. I’m going to move on to the next one.”

If you look at the effect of federal money on the potential for company profitability, when do you see that peaking?

I think you’re going to see it peaking in 2012 or 2013.

Really? So you don’t think it’s here yet, so there’s still a lot of opportunity for companies to improve their bottom lines in the next couple of years?

I think there are a lot of opportunities to do that, but the problem is you have to be really disciplined leading up to that point.

Part of the challenge that you see with folks who are selling at less than optimal values is that they’ve found themselves between a rock and a hard place. They see the potential a couple years down the road, that whether they would be direct beneficiaries of the stimulus dollars or not. As those dollars flow into the system, it will create a much more favorable capital spending environment for hospitals. Maybe not much more, but at least a more favorable capital spending environment for hospitals, but you’ve got to get there.

Candidly, I’m still of the view that if you really dig into the performance of the large majority of companies out there — whether they’re selling to hospitals or physicians — I think that the reality of sales momentum is far short of the story that’s been told. Not story as in a negative thing, but kind of the potential that’s out there. I just think this market, it moves slowly. You’ve been around the market long enough.

It’s like nothing happens fast here, and while the HITECH dollars would drive all the spending, effectively what they did is they froze things for a very long time. Consultants got a ton of business over that timeframe as people tried to figure out what to do.

But now as the middle-of-the-market folks are actually implementing their plans, it still is just going to take time. In that time, you have to be really disciplined. You’ve got to figure out a way that you’re not going to be reliant on outside money to come in to fund you. You have to make sure that you can figure out a way to cash flow yourself rather than being dependent on an investor to do it because investors very likely will get impatient with your performance if you can’t show that very immediate path to profitability.

Given how slow this market, is you’ve got to be able to hunker down and make it through. Down the road, there’s a ton of money to be made here, but it’s going to take time.

Companies will need to ride the wave up now and then down again when the surge of money runs out. Do you think that’s a concern, where companies look good now but will be terrible later?

I think there’s definitely some of that. That’s one of the things that as folks are looking at investment opportunities or are looking at companies you want to line up with. You do have to be careful about that.

It comes back to if you look at what happened to the professional services space in healthcare IT leading up to Y2K and then what happened after that. You look at it and you go, “Wow. All these companies were growing like crazy, and then business fell off really quickly.”

It wasn’t all just Y2K-driven, but what it came back to was you had the combination of the outside threat went away, you had a recession that came along, and then hospitals cut back on the professional services spending. You had this very quick retrenchment that a lot of those organizations had to do. For some of the bigger ones, it was really hard to dig out of that at all because it’s one thing to grow, it’s hard to cut. I think that’s the risk that you see.

And once again, not until 2015 or beyond, but the risk that you will see is that there will be all this money flowing through the system and folks will invest on the assumption that that will be there forever. It won’t. You’ll certainly see some businesses that will really struggle at that point.

Who are the potential buyers out there, and what is it they’re looking for?

In terms of the buyers, my fundamental belief is that this is still more of a buyer’s market than a seller’s market, if you want to have kind of a general view of the market. Now in certain subsectors of the market, it’s definitely a seller’s market. You can’t just say it’s a buyer’s market across the board, but in more places than not, it’s a buyer’s market.

Before getting to who the specific buyers are, generally what buyers are going to be looking for are businesses that can grow and that are growing, and businesses that either are or can show that they can be immediately profitable. Folks really aren’t interested in spending much money on businesses that are declining in revenue or going sideways on revenue and are either just making a tiny bit of money or losing money. Those are tough things to get to the finish line, and the value that you’re likely to see in situations like that will tend to be that you’re not going to get great valuation multiples.

Where you’re going to see the really big valuation multiples are going to be in situations where the business is growing, they’re making money, there’s significant growth left for them to go after, and then you’ll see some of these well-capitalized strategic buyers stepping in and making a play. The case examples on that really come back to you look at the deals that Ingenix has done over the last few months, and obviously varying multiples in terms of what they paid for things. But they’ve certainly been willing to pay more aggressively for businesses that they feel they can use their existing infrastructure — their existing customer reach — to generate substantial incremental value. Ingenix absolutely is going to continue to be a significant buyer. Emdeon is going to be a significant buyer.

You look at the McKesson / US Oncology deal. Very interesting in terms of how that changes the axis of that company a little bit beyond where they’ve ever sat before. In organizations like that, you’re going to see substantial increased acquisition activity because they can afford to look at a lot of different things and they’ll be able to pick and choose those deals that make the most sense for them.

I think, realistically, all of the large — whether it’s a diversified healthcare entity like a McKesson, or a specific healthcare IT company like an Allscripts — I think you’re just going to see a lot of acquisition activity on an ongoing basis because there are a lot of companies that want to sell and I’m not going to say there’s a very short list of buyers, but it’s not a huge list of buyers. The pure healthcare IT- and healthcare-focused companies are going to be able to pick and choose and pick those things that are going to drive the most value for them.

I think you’re going to see more folks coming into healthcare from outside of the space. Traditional software players are absolutely going to continue to increase their presence in healthcare. You’ll see traditional services players increasing their presence in healthcare.

Then, alongside all those groups, you’re going to see the private equity universe, whether bio guys or growth equity investors. You’re going to see them looking at healthcare technology and services as well because at the end of the day, it’s a market that healthcare as a whole is going to be growing in  2-3-times GDP over the foreseeable future. Healthcare technology and services will be growing faster than that. So if you get a business that is just growing at the market rate, it’s a nice business. If you get a business that can grow faster than that market rate, it could be a great business.

I think there’s a pretty broad universe of buyers right now. The problem is that buyers are picky because they’re getting to see a lot of different things, so they can afford to be picky.

In the past, the big money came from outsiders who didn’t know the market very well and got taken to the cleaners by buying something that industry folks would have thought was puzzling. Would you agree that if there’s big money to be made, it’s probably going to be somebody who just wants to buy a foothold in healthcare and doesn’t really understand the positioning of a specific company?

I think that’s one of the ways. The “stupid money” coming in is something that has been around healthcare forever. I don’t think that goes away. I actually think the folks who can stand to make the most money and make the best returns, in my opinion, are ones where you can make a very simple case. Some of this comes back to the case that can be made for somebody coming into healthcare from outside of healthcare.

But if you think about healthcare IT at its most basic level; you have, just round numbers, 6,000 hospitals. You have anywhere between 600,000 and 800,000 physicians and thousands of other care providers in this space. Just think about the provider universe and think about how fragmented that provider universe is and how hard it is to have a footprint that touches more than a fraction of that provider universe.

In my opinion, where folks will get the best exit multiple — where they’ll get paid the highest multiple for their business — and where the acquirers will make the most money on that are situations where you have an acquirer who has really broad reach and you have a seller — a target — who has a great product that is getting traction on its own, but will get a lot more traction if it can just access that acquirer’s distribution network.

Those are the situations where, honestly, if you look at the financial models, acquirers can afford to pay a lot. They can afford to pay what may seem to be irrational prices because the return that they get is incredible.

You go back to my favorite case study on that is the McKesson acquisition of ALI way back when. They hit the market just right. They bought a great company with a great product. They paid a huge number for it, but it really worked out for them and they made a mint on it because they could increase the price. They rolled it out to their customer base and it’s been a great outcome for them.

I think you look at some of the other deals that have happened over the last 10-15 years in the space and those are generally the deals that are the best outcome for everybody — that you have something where it’s a great product, a great capability, a great solution that gets acquired by someone who has a customer base that’s already interested in that solution. You put the two together and they get to take the market by storm. The sellers made a lot of money when they sold, and the buyers make a lot of money on being able to sell that product to their customers.

Sounds like it’s time for Oracle to buy Cerner. What do you think?

I don’t know about that.

You know Oracle wants in. They’ve got to buy something. They have so much cash that surely they want to be in healthcare.

They definitely want to be in healthcare, and I think you certainly can make a case that they’d buy Cerner. I actually think if they were trying to really mix it up, the angle that somebody would take — and once again, I know Epic’s not for sale and Meditech’s not for sale and eClinicalWorks isn’t for sale — but the concept of a big outsider coming in and picking up one of those folks would be the really big game-changer. They’d have to pay a huge number and maybe there’s not a number that’s big enough, but that could be a huge game changer.

But you’re right. From Oracle’s perspective, they did pick up Phase Forward, which makes them not the 800-pound gorilla, but the 2,000-pound gorilla in the clinical trial software space. But they certainly can’t sit here and look at the hospital market and the physician market and say, “Well, we’re not going to touch that.” I mean, there’s too much potential spend there for them to overlook it. The question is whether Oracle and folks like them, whether they decide to take a big jump or a little jump.

Interestingly, if you look at what historically works the best for folks entering the space, generally the big jumps have been tough. You think about McKesson/HBO. You think about Siemens/SMS, GE/IDX. You run down the really big deals and they haven’t worked out that well as compared to some of the ones where there have been much, much smaller plays. They’ve generally worked out a lot better.

If you had Larry Ellison’s wallet, how much would you be willing to spend on Epic?

That’s a great question. I would be willing to spend if I had his wallet — and I don’t have his balance sheet in front of me — but if I had his wallet, I’d be willing to pay a huge number for Epic because I think that in doing that, you’re effectively locking up a lot of the market for a long time to come. You go in and you say, “Well, what are the biggest hospitals in the United States worth from an IT spending perspective over the next 10 years?” You’re not talking about a two-year horizon or a five-year horizon. You’re talking about a really long-term horizon just given the decision cycles on these systems, and it’s a really big number.

You didn’t give me a number, so let me give you mine and you tell me if it’s too high or too low. I was thinking between $5 and $10 billion.

I actually would have said, without knowing exactly where Epic’s numbers are, $5 to $7 billion.

Of course that means you’ve got to have a seller.

Now honestly, I think that Judy and her team would still probably say no. I’d be surprised if somebody hasn’t come to Epic and offered them an absolutely tremendous number. But from Epic’s perspective — and I think this is part of the issue you’d see with a lot of folks out there — that’s not why they’re doing it. It’s not to just throw a bunch of cash in the bank.

I think if they felt that doing something like that would allow them to do a significantly better job of serving their customers, I think they’d do it and I think maybe they’d even do it for a much more reasonable price. I think that’s the take with Epic. That’s not the reason that they’re in the game.

Give me a handful of companies that most people haven’t heard of that you like.

As I look at the market, I think that there are a couple things that are going to be really, really important. The most interesting area for me really, circles around cost containment and quality management. What it gets back to is the fundamental challenge that we have as a healthcare system is that we have no control over cost and we’ve got, effectively, a fee-for-service model. We have a piecework model.

As we roll forward in healthcare broadly, we’re going to run into situations where those new approaches to care delivery and to care management and case management. Those companies are going to have a chance to build a tremendous amount of value.

There are a number of companies that are focused on — some people call it physician analytics, and some people call it the quality infrastructure. Some of these guys are thinking about it as local HIEs, but technology platforms that allow for capturing information from disparate sources and analyzing that information and deriving useful, actionable outputs from that information. That for me is a huge opportunity. The challenge that you see is that a lot of companies that play in that space are coming at it from very different angles.

I haven’t come across a company that I’d say wow, they’ve really got it. Some folks are coming at it from the HIE angle, some people are coming at it from the payer angle, some folks are coming at it from a clinical trials angle, but you haven’t had somebody who comes out and says well, here’s an infrastructure that it’s truly going to support  — whether it’s called an ACO or whatever the buzzword of the day is that’s used to describe that — but here’s an infrastructure that’s going to allow for integrating disparate data sets. In flagging issues with patients getting the right intervention and then monitoring the results, those types of things are going to be huge.

One of the other areas that I get really excited about is the home monitoring space. Home monitoring has been just a backwater in healthcare for such a long time because the reimbursement models haven’t been there to support it. Now what you’re seeing is the beginning of a trend toward coming up with new ways to go about monitoring patients when they’re in a home environment.

Honestly, once again it’s reimbursement-driven because people are fast-forwarding to when they’re not going to get paid for the 30-day readmits and saying, “All right, how are we going to keep these people out of the hospital?” Well, there are these tools that are out there that have been well proven that if you’re doing the right types of monitoring at home, you can keep people out of the hospital. Well, that’s getting pretty exciting.

Area one, it’s not interoperability, it’s really interoperable analytics. Area two is home monitoring.

I still get intrigued by the fact that I think there are a lot of opportunities in just niche-y areas that the big guys don’t necessarily focus on. Even in areas where the big guys do focus, you have the opportunity to build real expertise and just own a sub-segment.

You look at folks like Curaspan out there, in terms of the discharge management, and you look at TeleTracking in terms of the patient flow solutions. Folks like that that just pick what they’re going to do and they do it really well and just stick to their knitting and build up. Those are pretty exciting. I think most folks have probably heard of those guys, but that’s really exciting.

I know a lot of people disagree with me on this one, but I still come back to I think there’s still opportunity for — whether you call them best-of-breed or departmental solutions — I still think there are opportunities within hospitals for non-enterprise vendors. Now, do I think there’s an opportunity in a hospital for a non-enterprise vendor that has one function that’s a very narrow function? Probably not. If you just have a software product that handles valet parking at the hospital, yeah, you’re probably at risk for somebody taking you out.

But if you have a suite around access management that you could go in and you’re better than the access management capabilities of the hospital’s enterprise vendor and you have enough functionality that you’re not just a one-trick pony, there’s real opportunity for that.

I think you will see a consolidation in terms of the number of vendors because you don’t want to have 200 vendors out there. You want to have a manageable amount. The key is if you want to play in the hospital market and you’re not an enterprise guy, you’ve just got to figure out how to get big enough and add enough capability that you’re one of the surviving vendors. That’s pretty exciting to me. I think it’s an area where there haven’t been a lot of folks focusing on it, and I think some companies can really take some interesting steps there.

Last question. You get one-sentence answers.Give me three predictions on anything related to healthcare IT.

Prediction #1 is that the M&A market in healthcare IT will be very strong in late 2010 and through 2011, and then will fall off significantly in 2012.

Prediction #2 is that by the end of 2011, there will be multiple deals north of a billion dollars in the space, which would be a big disconnect from history that generally, there’s one of those deals every couple years. But before the end of 2011, there will be multiple large deals.

The third prediction would be that the actual payout for stimulus funds will be a fraction of the total potential amount.

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