Upswing predicted for physician IT spending

But some observers say the forecast could bump up against the realities of the business environment that doctors face, including declining reimbursements.

By Tyler Chin — Posted Oct. 9, 2006

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A recent survey forecasts that six years from now, physicians' offices may well spend more in aggregate on information technology than will hospitals. But some physician leaders say that prediction might not come true because of reimbursement pressures, particularly from Medicare.

BCC Research, a Wellesley, Mass., market research company, is predicting that the U.S. health information technology market will more than double over the next six years, from $16.4 billion in 2005 to $34.7 billion in 2011, with sales to physicians and other nonhospital entities making up more than 51% of the market at that time. That's because the average annual growth rate of sales in the physician office/home care/nursing home/hospice segment, 15%, will outpace sales to hospitals at 12%, the company said

At press time, BCC Research could not provide the breakout dollar figures for just the physician office market. But the company said physicians would be driving the rate of growth within that sector. The total health care market includes sales of practice management, electronic medical records, diagnostic imaging and clinical trials systems.

Some observers agreed that the forecast could come to pass if doctors have the money to pay for EMRs, with startup costs that can run from $10,000 to $40,000 per physician.

"I think right now there is a tremendous interest by many physicians in having EMRs, but I think that many of them are concerned about the business case," said AMA Trustee Joseph M. Heyman, MD, an obstetrician-gynecologist and EMR owner in Amesbury, Mass.

"They are concerned about the [security] of patient data, they are concerned about the cost that is involved and they are concerned about what their future holds in the face of a potential 40% drop in [Medicare] payments over the next nine years," Dr. Heyman said.

If Medicare cuts physician pay, other insurers are likely to follow suit, which in turn could discourage doctors from investing in EMRs, he said. Dr. Heyman added that everyone would love to have physicians own EMRs because they help doctors deliver better care, "but we think that under the present business environment ... it's very difficult for physicians right now to make a [financial] commitment like that."

But others say that although Medicare cuts have had some impact on physician EMR purchases, other factors are driving more physicians to adopt the systems. "All of them think that there's going to be some savings in efficiency in their office," said Steven E. Waldren, MD, assistant director of the American Academy of Family Physicians' Center for Health Information Technology. "A lot of them also are concerned about quality and safety, but I think right now that with all the cuts in Medicare [they] think that they have to get efficiency first before they can ... start to implement those quality improvement initiatives in their office."

The drive for efficiency has helped increase adoption of EMRs among AAFP members from 10% in 2003 to 30% in 2005, Dr. Waldren said. "We've definitely seen a huge uptake [in adoption] but I think we're going to see a little slowdown in this next year because of the sheer number of things that are ongoing."

Dr. Waldren is talking about various efforts to certify EMR systems so that physicians can be assured they will work for their practices, efforts that could have physician holding off on purchases until they see what systems make the cut. On the other hand, some might decide not to wait because of pay-for-performance or financial incentives from insurers, employers and others to adopt the technology, Dr. Waldren said.

United Physicians PC, a 1,700-doctor independent physician organization in Bingham Farms, Mich., can attest that incentives are a powerful motivator. Last year, it offered to give a total of $1 million to the first 150 physicians who bought a discounted EMR from Misys Healthcare Solutions. The IPA didn't have any trouble signing up doctors, said Steven D. Grant, MD, an internist who is the organization's president.

So on Sept. 13, the IPA began offering to subsidize the first-year cost of electronic prescribing software for its members, he said. Doctors will have to bear some of the hardware cost, but the IPA is working to keep those down to a minimum. "We launched the initiative because ...we really believe that getting doctors up and running electronically in whatever way, shape or form is probably good," he said. "In the long run, it will help their offices run more efficiently, and it's also going to improve the quality of medicine they practice."

Because there are more physicians' offices than hospitals, Dr. Grant thinks "there's a good possibility" that BCC Research's forecast that physicians will drive the majority of technology spending could happen.

But Pat Wise, vice president for health care information systems at the Healthcare Information and Management Systems Society, disagreed. A survey that the Chicago-based industry group expects to release soon found that 74% of group practices around the country don't have EMRs, and 75% of them report that they don't plan to buy an EMR in the next 24 months.

Based on that finding, she doesn't expect physician spending on information technology to overtake hospital spending because "those practices that had considered going for an electronic health record have pretty much done that."

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Infotech boom

Sales of health care information technology in the United States will hit $34.7 billion in 2011, up from $16.4 billion in 2005, according to BCC Research. The market research company estimates that sales to physicians and other nonhospital entities will represent more than 51% of the total market in 2011. Here's a breakdown of the market, in millions of dollars:

Market segment 2005 2006 2011 Average annual growth
Hospital systems $8,554 $9,508 1$6,756 12%
Physician office/home care/nursing homes/hospices $7,701 $8,856 $17,813 15%
Clinical research $125 $130 $166 5%
Total $16,380 $18,494 $34,735 13.4%

Source: BCC Research

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