Medicare pay cuts threaten physician tech investment

Many doctors see information technology as essential, but some wonder if reduced reimbursements will force them to cut back on buying and using it.

By Tyler Chin — Posted May 9, 2005

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As the federal government prods doctors to invest in costly electronic medical records software, it is simultaneously on course to slash physician pay by about 4% in 2006 and 26% cumulatively over a six-year period ending in 2011.

Unless Congress reverses impending Medicare cuts, some observers fear the cuts will severely crimp physicians' investment in information technology. A recent AMA Member Connect survey found 54% of physicians would defer buying information technology if Medicare reduces rates in one year, and 67% would do so under multiple years of rate cuts.

The timing of the cuts couldn't be worse, some observers say. They believe that doctors -- widely perceived for years as technophobes -- are now at the "tipping point" of adopting EMRs, which some also call EHRs, or electronic health records. That view was bolstered in April when Manhattan Research LLC, a New York-based market research company, released a survey claiming that the number of doctors who find information technology essential to their practice more than tripled to 380,000 in 2005 from 114,000 in 2002.

"Borrowing the $25,000 to $50,000 per doctor to make a long-term investment in an excellent EHR will only be done if the business case is there and doctors have the cash flow to pay back their loans," said Peter Basch, MD, an internist and medical director of e-health initiatives at MedStar Health, a health system in Columbia, Md. "With primary care doctors already living with an 18% decline in [Medicare] reimbursements since 1995 -- taking into account inflation -- any further cuts will likely make it impossible for them to afford excellent EHRs."

AMA Chair J. James Rohack, MD, a cardiologist in Temple, Texas, echoed Dr. Basch. "We're very concerned about physicians not being able to adopt the new technologies that have been shown to be helpful [to them] because they can't afford it under this flawed payment scheme that Medicare has," Dr. Rohack said.

The AMA supports the use of information technology but has policy against physicians being forced to buy or use it.

Tech pulse

In a national telephone survey conducted between January and March, Manhattan Research asked 1,208 physicians if the Internet was essential to their practices.

A majority said yes, which, combined with other data from the survey, led Manhattan Research to conclude that other technologies are also essential. Although the Internet is the most-used, doctors also use EMRs, personal digital assistants and e-mail. The bottom line is that 380,000, or at least 50% of the country's practicing physicians, regard information technology as essential, said Mark Bard, president of Manhattan Research.

That doesn't surprise Dr. Rohack.

"It's pretty clear that physicians embrace any technology that will help improve the way that they can provide care to patients as well as help them become more efficient," he said. For example, physicians, including himself, were among the first to embrace cell phones, even in the days when they weighed about a pound-and-a-half, he said.

Should the Medicare cuts go through and liability insurance rates continue to rise quickly, doctors in mid-career will be hit the hardest, Dr. Rohack predicted. Young physicians generally see technology as essential no matter what the cost, and older doctors might retire rather than invest in technology he said. Out of more than 5,400 physicians who responded to the AMA's member survey on Medicare pay cuts, 8% would close or sell their practice if pay is cut for one year, while 43% said they would if pay is cut for several years running.

"[Some] physicians may not have a master's in business administration, but on the other hand they aren't ignorant of the process that if you spend more than what you bring in, you're doomed to fail," Dr. Rohack said.

However, some think that the cuts could actually spur doctors to invest in technology rather than turn away. Some studies have shown that information technology saves money, and consequently "the only way they are going to compensate for this reduced reimbursement is to deploy technology," said Eric Brown, an analyst at Forrester Research, which advises businesses on technology issues.

Dr. Basch disagreed. "There are inefficiencies in larger groups that are easier to improve with EHRs, but small offices tend to run very lean and while having some potential for efficiency gains, it is unclear as to whether those gains can offset the total cost of ownership of a good EHR system."

So far, the proposed Medicare cuts haven't yet surfaced as a cause for concern among vendors, said Charlene Underwood, chair of Healthcare Information and Management Systems Society's EHR Vendors Assn.

But she points out the lack of a business case for small practices to buy an EMR is a reality that has bedeviled vendors for years. Most savings from technology go to insurers rather than the doctors, she said.

Pay-for-performance programs, under which doctors can receive bonuses for meeting certain quality measures and using technology, might make it more financially palatable for physicians to buy systems. Also, some insurers have given free PDAs or e-prescribing systems to physicians to encourage technology use.

But neither strategy has taken hold with most physicians, and pay-for-performance has been particularly controversial because of concerns over whether insurers are really measuring quality or concentrating on cost.

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Can't live without it

The number of physicians who consider the Internet, electronic medical records software, e-mail and other information technologies as essential to the practice of medicine has more than tripled over a four-year period:

2002 114,000
2003 200,000
2004 250,000
2005 380,000

Source: Manhattan Research

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Use of technology

Based on a national telephone survey of 1,208 physicians between January and March by Manhattan Research, the number of doctors using certain technologies has increased since a similar survey was conducted in 2003. The 2005 survey has a margin of error of plus or minus 2.8%.

2003 2005
E-prescribing 8.8% 13.2%
EMR 18.4% 21.4%
PDA 40.4% 46.2%
Internet 95.0% 99.0%
E-mail N/A 75.0%
Online consult 19.0% 24.0%

Source: Manhattan Research

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