With the health-care industry continuing to grow—spending in this market has reached roughly an estimated 18% of the U.S. gross domestic product (GDP)—IT companies are looking for a slice of the pie. Electronic medical records are one way for these companies to cash in, but with the increasingly complicated regulatory structure of the medical industry, the opportunities may not be as great as the size of the health market would indicate.
Electronic Medical Records: Savior?
Electronic medical records (EMRs) have been touted as just short of a cure for everything that ails the health-care system. As a Time blog (“Electronic Medical Records: Will They Really Cut Costs?”) summarizes neatly, “If the cheerleaders—including the one in the Oval Office—are right, computerized medical records will save us all: save jobs, save money, reduce errors, and transform health care as we know it.” This is not far from the claim that paving roads, rebuilding bridges and otherwise “investing in infrastructure” will somehow revive a flagging economy.
One thing is becoming increasingly certain, however: EMRs will not reduce health-care spending. The Time blog presciently noted (in 2009), “The slightly embarrassing financial reality of EMR is that large, mechanized medical operations like hospitals, clinics and big multi-doctor practices stand to make quite a bit of money by adopting them—given our current convoluted system of paying for health care.” Fast-forward to 2012: a New York Times piece (“Medicare Bills Rise as Records Turn Electronic”) reports on just this phenomenon in the context of Medicare. “The move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.”
Nevertheless, despite the fact that EMRs have backfired with respect to the propaganda, they are likely here to stay. The main question surrounds the outlook as far as IT companies are concerned.
Incentives and Disincentives
The federal government has chosen EMRs as one of its pet causes, and it has therefore provided incentives (positive and negative) for health-care providers to implement EMRs. Although this artificially enlarges the market for EMRs, IT companies can nonetheless take advantage of the situation, whether by joining the legion designing and offering software for handling EMRs, by providing data center services like data storage or by delivering any number of other services.
In the context of data centers, one of the major hurdles to tapping into the health-care market is regulatory compliance. Specifically in this case, HIPAA/HITECH legislation requires data center facilities to meet certain standards for protecting protected patient information if they store, process or transmit such data. Not every regulation in HIPAA necessarily requires data centers to add new infrastructure or otherwise make changes (many such facilities already implement standard—if not state-of-the-art—measures to protect customer data), but compliance still adds costs. Depending on the provider, the costs of accessing the health IT market may or may not be worth the potential returns from gaining access to a new clientele.
Compliance Costs Are Not Incidental
The costs of compliance may be worth the return in the health IT market—if IT companies can afford those costs in the first place. The increasing federal intervention in the health-care market, as EMRs and the ACA (Obamacare) legislation indicate (“Health Premiums Up $3,000; Obama Vowed $2,500 Cut”), do little to improve the problems that are arguably the result of over-regulation. Compounding the problem is concern about IT spending in the face of an economy that simply isn’t recovering. ZDNet (“CEOs, CFOs bummed about economy: Can IT spending hold up?”) asks, “Can information technology spending hold up when both CEOs and CFOs are cutting expectations for the U.S. economy?...Given both CEOs and CFOs are bummed about the economy it’s only a matter of time before tech executives start getting a lot of questions about their projects and budgets.” IT, although not unaffected by economic conditions, has remained fairly strong owing to constantly growing demand for services. But these services must still be paid for, and as customers run low on money, spending may decrease or, at least, fail to grow significantly.
Beware Health Care
As a Washington Times article (“ORIENT: Health care is the next bubble”) notes, “People generally don’t recognize a bubble until it bursts.” IT companies are keenly aware of the danger of bubbles, having been near the heart of the so-called dot-com boom (and bust). Bubbles arise from unsustainably high levels of spending and valuation; the result, when the market recognizes the problem, is a bust. The housing market is a more recent example. Education (particularly higher education, but also lower levels as well) is a bubble that is on the verge of bursting—student loan debt is dwarfing the ability of graduates to pay given the dismal job market (“The Mad as Hell Generation”).
Health care is another such bubble in the making. The system of insurance props up astronomical costs, and that system is being further inflated by the laughably named Affordable Care Act (ACA—Obamacare). Medical expenses for trauma and chronic diseases often exceed the ability of patients to pay, and insurance premiums are increasingly stifling to individuals and families facing stagnant wages (“Report: Median Income Worse Now Than It Was During Great Recession”)—all raising the specter of a bubble on the verge of bursting.
IT companies must weigh this risk as they consider whether to enter the information side of the health-care market. For some companies, even this risk may be worth the potential rewards of a still burgeoning segment. The danger to companies in IT may be less direct, however: instead of losing investments, they may simple face the kind of broader economic shockwaves that resulted from the housing meltdown.
Compliance: The Word of the Decade
IT companies have some opportunities in the realm of electronic medical records, but the broader health market is looking more bearish than bullish. Exactly what a bust would look like, and how it would affect IT specifically, is less clear. Regulations and compliance are the order of the day in the health industry—including IT’s role therein—but a bust in this market might lead to a recognition of something the Internet has demonstrated quite well: a little freedom (and responsibility) goes a long way.
Photo courtesy of tedeytan