RHIOs hit financial stumbling blocks on path to national network

Researchers find regional health information organizations are struggling to obtain permanent sources of funding.

By Pamela Lewis Dolan — Posted Nov. 12, 2007

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Unless regional health information organizations tap into additional funding sources, establishing a national health information exchange will be more difficult than initially predicted.

That's the conclusion some researchers and those in the business of RHIOs have reached, as the young industry looks for long-term financial sustainability.

The Healthcare IT Transition Group, a Tulsa, Okla.-based research group, recently released its 2007 study, "Sustainable RHIO Funding and the Emerging Business Model." Researchers found a need for RHIOs to rethink funding strategies and focus on educating those outside the industry on the benefit of a sustainable RHIO program.

RHIOs are being counted on as the underpinning of the proposed national health information network. This year, high-profile failures of RHIOs in California and Pennsylvania have put more of a spotlight on the sustainability of locally run RHIOs.

The problem, experts say, is too much reliance on federal and state money and not enough fundraising and support building on the local level, including tapping hospital systems and physicians for financial support.

"RHIOs will start getting their message out when RHIOs stop just preaching to the choir," said Michael Christopher, senior development analyst for Healthcare IT Transition Group.

RHIOs in the startup phase reported that 84% of their revenue came from gifts and grants. But those in the production phase -- considered to be when a RHIO is mature and working -- rely on gifts and grants heavily as well. Those RHIOs reported that 34% of their revenue came from that cash stream, making gifts and grants the greatest contributor to their finances.

Among all RHIOs surveyed, 53% reported cash flow to be one of their biggest nontechnical issues.

Tom Duarte, executive director of the Mid-South eHealth Initiative in Tennessee, said that RHIO is three years into a five-year, $12.5 million grant that is currently the only funding source. While the organization hasn't discounted the idea of local, private grants, Duarte said, that's not where it is currently focusing its efforts. He said the leadership would rather first engage the entities that will financially benefit from an information exchange, such as physicians, insurers and the state.

The ones who will be most likely to provide financial backing are those, Duarte said, who are "going to scream the loudest if you unplug this thing."

Building support

Christopher said while more than 60% of the 38 RHIOs surveyed said they were self-sufficient, many said they were still seeking grants. There can be sustainability with a business model that relies on grants, he said. "But they are not willing to do the things that organizations that run on grants need to do. They want to run on government grants alone."

RHIOs need to reach out to community groups and local philanthropists and educate them on the benefits of having a RHIO, Christopher said. Donations from several of these groups combined can have a large impact.

The Healthcare IT Transition Group's survey found that while private philanthropy rises almost every year in the U.S., contributions to RHIOs from private philanthropies actually declined from 29% to 22% from 2006 to 2007.

"Smaller grants are used to leverage larger ones, which provide sufficient capital to establish or expand earning capacity, which leads to sustainability," according to the study.

The Maine Health Information Network offers an example of how diverse funding worked to its advantage. James Horner, project consultant for MHIN, said even though the local grants Maine's RHIO has received have been significantly less than government grants, each one allows the organization to address a specific need and helps raise community support.

Joseph Heyman, MD, an ob-gyn from Amesbury, Mass., and advisory board member for the MA-SHARE program in Massachusetts, said the RHIO was funded by a $50 million grant that is scheduled to expire in July 2008. Dr. Heyman is worried about where the estimated $300,000 to $400,000 needed per year to maintain the project will come from.

Dr. Heyman, who also serves on the AMA Board of Trustees but was speaking on his own behalf, said possible sources of funding include the sale of aggregated data as well as passing some costs on to the patient.

But the advantage for the project, he said, is that it has been the physician community driving it, and he is confident the physicians and hospitals involved will be willing to donate toward the project's sustainability through a subscription fee. But it won't be enough, he said.

Experts say two high-profile RHIO projects that failed are examples of what can go wrong when community support is not there. In Santa Barbara, Calif., home to the first-known RHIO project, organizers realized too late that people were interested more out of curiosity than backing the project financially.

And in Pennsylvania, a state RHIO was forced to dissolve when the health care community failed to back up a patient-centric RHIO model.

According to founding board member Sabatini Monatesti, a health information exchange is still in the works for Pennsylvania. But this time the model will be one that will provide more value for the local health care community, and one that he hopes the hospitals and medical groups will support both financially and conceptually.

Marc Overhage, MD, PhD, president and CEO of the Indiana Health Information Exchange, said having the solidified support of all the major players in the Indianapolis market before the project got under way was key to its success.

Indiana's RHIO has been touted as one of the more successful ones in the country. The U.S. Dept. of Health and Human Services recently awarded the group a $2.5 million contract to begin a trial implementation of a national health information exchange.

Indiana's system has the capability to exchange actual health records as part of a research trial funded by grants to the Regenstrief Institute. But Dr. Overhage said the organization is not going to market that service until it figures out who will pay for it in the future.

For the time being, Indiana is focusing on the electronic transmission of lab results. Instead of a subscription fee, practices pay on a per-use basis.

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Dash for cash

While cash flow remains the biggest nontechnical issue facing regional health information networks, one survey also found other concerns were bogging down some projects.

Most challenging nontechnical issues:

Cash flow 53%
Partner relations 39%
Political/legislative issues 34%
Privacy concerns 34%
Data ownership 26%
Project slowdowns 26%
Leadership struggles/control issues 16%
Other 13%
Cost overruns 5%
Regulatory issues 5%
None 5%

Note: Survey respondents could give more than one answer.

Source: Healthcare IT Transition Group's 2007 survey, "Sustainable RHIO Funding and the Emerging Business Model"

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RHIO revenue streams

Generally, the further a regional health information network progresses, the less it relies on grant money -- though many still rely on it even in the production phase, the point where a RHIO is considered fully mature and available for use.

Startup phase Transition phase Production phase
Gifts/Grants 84% 56% 34%
Member fees 7% 12% 28%
Transaction fees 0% 4% 8%
Other earned income 3% 4% 24%
All other 6% 24% 6%

Source: Healthcare IT Transition Group's 2007 survey, "Sustainable RHIO Funding and the Emerging Business Model"

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