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Sowing the Seeds…

by Jonathan Bush, President & CEO

I never used to talk much with hospital CEOs. After all, if you’re running a hospital, improving the revenues of the physician practice by 6%, when the physician revenues only make up 10% of your overall revenues, doesn’t really make it to the scheduling screen.

Now it seems that hospital CEOs are the only new people I meet. In fact, I recently had dinner with over 100 of them at a meeting of the Leadership Institute in Washington, D.C. I gave the breakfast speech the next morning…it was awkward.

You see, I’m dying to be liked by these people—all people really—but these are health system/hospital CEOs and CMOs, many of whom are currently thinking about adding hundreds or even thousands of doctors to their payrolls. For a guy who does business services for doctors, who better to be friends with?! And yet, the only thing I could think to say to them was that they were sowing the seeds of their own destruction! I try to be smooth and cool when I get up in front of these groups, but somehow, when the microphone turns on, I can’t keep what’s on my mind from pouring out of my mouth!

I’m not exactly sure how I said it then, but let me try to say it like a grown-up now.

First, these days offer perfect conditions for planting seeds of destruction. Why? Docs fear Barack! Well, maybe not the man himself, but they fear for the near future of their practices. They have looked at EMRs in the past and…well…taken a pass. EMRs can cost a lot of money upfront, successful implementation is not a sure thing, and, on average, EMRs just slow down patient throughput. So a doc who lives on patient throughput finds this proposition to be a non-starter. Now, with new federal incentives, he or she feels compelled to get an EMR. And those who aren’t immediately enticed face future penalties. Add to this the health reform bill which adds millions to Medicaid rolls (not the best payer), and now doctors have compounding fears. They will need to fork over upfront capital for a product that will slow them down, and their income is about to decline.

What’s a doc to do? Same thing they always have done when such a storm is brewing: SELL THE PRACTICE TO THE HOSPITAL! They make the following offer: I’ll sell you my practice on the cheap IF you buy me all the EMR that Barack wants and make it work, AND IF you “keep me whole” on what I am making today.

What’s a hospital to do? DO THE DEAL! Most hospitals are buying practices and promising them EMRs as well as salary subsidies. Regardless of what happens over time, it makes short-term sense to keep OTHER hospitals from buying and re-purposing these practices! Hence we are in a bit of a free agent season where docs are concerned. Primary care docs are routinely getting salary subsidies of over $100,000 per year and cardiology subsidies are routinely exceeding $250,000! This type of free agent season happened in the early 1990s between docs and hospitals. Then, in the late ‘90s when hospitals asked docs to take pay cuts, the docs started complaining to hospitals about the finer points of their billing and management and the mergers broke up. So will it be déjà vu all over again in 2015 when the rates come down and hospitals must ask their newly acquired docs to take pay cuts?

No, I think it will be worse.

In 1990, hospitals didn’t load large amounts of capital expenditure into the deal when they acquired practices. This time they are! The capital expenditure layered onto each doc acquired for EMR software and hardware can be around $50,000 to $70,000! Now add the fact that EMRs generally reduce patient throughput and require “EMR departments” to maintain (up to $18,000 per physician in annual maintenance costs), update, and load the software with clinical data each day.

Lenders are generously offering to finance these expenditures over 10 or 15 years for hospitals. Ever seen a 10 or 15-year-old piece of software? Ever wondered what would happen if the docs and hospitals break up? Do you think the docs in the community are going to use those hospital-based software systems or will they switch to web-based systems that maintain themselves and cost less? If this happens anywhere, that hospital will have to remove the software asset from its balance sheet. IF they do that, they will trigger their loan covenants and freak out their lenders.  If their lenders freak out at a coming wave of hospital defaults, they will tighten up on their other hospital loans. Uh-oh.

So what’s the moral of the story?

Hospital: If you want to remarry your ex-practice-spouse, go for it. That practice has grown up a lot over the last ten years, and this really may be the Cinderella story of integrated care you hoped it would be. All I ask is this: don’t have kids right away! At the very least, think twice before investing millions of dollars in software. Use the power of the Internet (and web-based EMR solutions) instead of large amounts of capital expenditure, so that if things don’t go well and you break up again, you can still be friends.

Jonathan Bush is the President and CEO of athenahealth.

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