Some of the drivers are healthcare-specific--managed care, government regulations, corporate compliance--others reflect the mergers, acquisitions and consolidations that are changing the face of the industry. A third driver is the industry nightmare of year 2000 compliance.
Changing managed care requirements--new types of contracts as well as the move to capitation and global case rates--are pushing organizations toward upgrades and new systems. Although not the sole factor, Y2K is not only driving, it’s stirring up competition within the vendor market, says Catherine Fields, director of financial product marketing for Compucare Corp. of Reston, Va. Upgrade paths offered from the larger vendors are often so expensive that buyers are looking around before committing to an upgrade for a legacy system. "It has opened up a door of opportunity," she reports, "particularly for smaller companies."
Vendors are feeling the weight of Y2K. Threat of litigation certainly plays a role, but a recent study underwritten by Compucare bears out a common theme running throughout the industry. "Many hospital and health system contacts… assume their software vendors will become year 2000 compliant," comments Ron Bernier, president of Compucare.
Vendors in other parts of the market concur. "The importance of Y2K has not hit many of our physician practices who are depending on vendors to bring them up to speed," says Kelly Kavanaugh, vice president of marketing for Reynolds and Reynolds Healthcare Systems, Dayton, Ohio. Such physician practice management vendors have good reason for concern. As she points out, forward scheduling practices dictate Y2K compliance for those systems by year-end.
A horse race
When it comes to general financial applications--that is, true back office accounting packages--there may not be much real incentive to change workhorses. And, according to survey-based research cited by Bob McCullough, market intelligence manager of Infinium Software, Inc., Hyannis, Mass., many healthcare organizations haven’t changed. They typically hold onto financial systems for five to seven years as compared to financial services organizations’ three to five year turnover. It’s even longer in the physician practice management market, according to Kavanaugh. The mind-set there expects a system’s life of greater than five years, she says; the average is seven to 10.
By driving systems to exhaustion, healthcare may extract more return on investment, but at what cost? A period of five to seven years, McCullough points out, passes through many generations of technology and application capabilities.
The front-end lingo may be different--healthcare CFOs speak in terms of patients and billing as opposed to revenues and accounts--but there are no drastic differences between general financial and healthcare financial systems, according to McCullough. It should be no surprise, then, that healthcare organizations are finding more vendors at the door. (See "Cross-market Forays" below) Traditional HIS vendors such as HBOC, SMS and MEDITECH must now compete head-to-head with industrial-strength vendors the likes of Infinium, Lawson, PeopleSoft and Ross.
That makes for a pretty crowded field of HIS and general financial vendors queuing up for the buys. There definitely is an upsurge of interest and more organizational plans to buy, confirms McCullough, but healthcare plans to spend fewer dollars than other industries. Ultimately, cost divides the turf.
Although HIS products typically include financials as part of the core functionality, the strength of traditional HIS vendor products is--and always has been--around the healthcare-specific administrative applications. HIS vendors have always provided adequate financial systems, but they have never been in the same league as those vendors active in financial services and manufacturing industries. Some HIS vendors are partnering with best-of-breed financial companies--SMS is an example here; others are playing to the differences.
Price-point and functionality are the main determining factors in choosing HIS or best-of-breed. McCullough says that if a hospital is considering an HIS mainly for the clinical system, with the financial system as an afterthought, the bundled HIS price is difficult to beat. Conversely, those looking for a very robust financial system tend to look to the best-of-breed vendors. Fields agrees, noting that people seldom come to HIS vendor Compucare just looking for general accounting applications. Sticker prices from a major industry vendor are high--often exceeding $1 million, she says. The $50,000 for an Affinity system plays well to the cost-handicapped. In general, Fields has found that smaller hospitals are more concerned with price than with functionality--and they are more apt to buy the entire HIS system, including financials, from a single vendor.
On the other hand, larger hospitals have more money and are more likely to consider best-of-breed products. She says, "I believe the movement is toward best-of-breed applications. Smaller hospitals are trying to find the money to invest in products that will serve them for another 15 to 20 years and they’re more willing to cut loose with some dollars to buy the best product for a specific department."
According to Dennis Byron, research manager of vertical industry applications for International Data Corp. of Framingham, Mass., there are no major new ’must have’ requirements for these financial systems. As in other information systems, it is difficult to over-emphasize the importance of flexibility and scalability. The ability to grow, to consolidate and roll in new systems and to reconfigure reporting structures to meet changing business needs are essential. A growing trend, however, incorporates automated insurance capabilities in the package, he notes. Also, regulatory compliance and security features (such as audit trails), long available in separate packages, are now coming together in one product.
Billing to the post
"General ledger is general ledger and bookkeeping is bookkeeping, but patient accounting is a different beast altogether," says Fields. Basically an accounts receivable system, patient accounting differs from accounts receivable applications sold by general financial system vendors. McCullough deems billing, patient care and reimbursement front-end functions, separate from other business financial packages. Traditionally at the core of HIS systems, patient accounting can--and should--encompass all financials from intake to billing.
One of the trends we see is the tendency to spend more money upgrading and adding new information systems, says Elizabeth Propp, vice president, Healthcare Financial Management Association (HFMA), Washington, D.C. The complexity of new managed care models, Medicare and Medicaid, are effectively shortening the lives of many patient accounting systems. Even with frequent updates, it is all but impossible to keep up with the changing market demands in such areas as capitation and global case rates. To compound the problem, some issues are so new that an automated solution may not exist, forcing organizations to fall back on manual workarounds.
How long will you need both types of systems? For a very long time, says Fields. "Patient accounting is extremely complex--mainly due to federal and state regulations." The large vendors such as Lawson, PeopleSoft and Ross do not currently compete in the patient accounting market. "They may be thinking about it," she says, "but they don’t know what they don’t know yet."
Hospitals are encountering new sets of challenges on acquiring physician practices. "Physician billing is a whole different ball game than hospital billing," says Propp. "Hospitals that have been very efficient in billing on hospital forms often find they must reinvent the billing process after acquiring a physician practice." And dealing with physicians as sub-contractors is another thorny issue, she adds.
As the physician practice market changes, it straddles two business worlds, observes Kavanaugh. Since capitation has not really swept the country as many expected, the market is still showing mixed responses to the managed care phenomenon. A number of physicians remain entrenched in fee-for-service and need a compatible billing system. Nonetheless, many see the inevitability of managed care, she reports, and are buying a system that can take them there.
Demand for integration
And then there’s integration. Everybody wants it. Nobody has it--not totally anyway. Total integration, meaning a single product, single platform, do-everything solution for the enterprise, is utopia, says Kavanaugh. Besides, she says, it’s a cost issue--organizations want to keep their investments. As integrated solutions go, she reports interest but not a lot of demand yet. People are still exploring, learning about the potential capabilities and planning. Most interest now focuses on the clinical and on integrating clinical with financial systems. In an ideal scenario, she says, the physician makes the diagnosis, determines the treatment plan and sends the bill out with a single key function.
For a long time, people didn’t see financial systems in terms of integration, says Propp, but the integration of clinical and financial data is critical for both decision support and for the computer-based patient record. She continues, "I believe that, as the balanced budget amendment in 1997 laid the framework that will take all the cost-based Medicare systems and turn them into case-rates or per diem-based systems, it will also fuel the need for excellent decision support tools. And if an institution intends to have good decision support information, whether now or 10 years from now, they will need to integrate the clinicals with the financials to make it happen." Integration is also important in the new area of corporate compliance, she says, where lack of integration can result in many innocent errors.
Today’s buyers are "forming and storming" organizations, says Kavanaugh. They are newly formed groups with huge plans to grow--and storm the market. They are not necessarily looking for a single vendor solution but they are grappling with the reality of consolidating technology. These super-group new corporations understand that they must present a united front, says Lawrence Borok, president of Vantage Point, Inc.,Westchester, N.Y., and to do that, they need a corporate-type information system and infrastructure. At the same time, regulations and managed care have made it more complex. He says, "I see the physician practice management system of the future including contract and risk management and being much more reporting- and analysis-oriented. Financial systems must bridge to other systems."
In general, IDC’s Byron is optimistic about total integration and, in his opinion, HBOC is leading the parade. "They have begun work, he says, "and, unless they don’t execute well, I wouldn’t be surprised at an integrated system in five years." Although he doesn’t discount the possibility, he doesn’t know of a small company with a completely integrated, full-blown system. Even if there is, he says, "A small company’s development costs to keep it up to speed would be prohibitive. I don’t know how they could possibly compete with HBOC. To me, HBOC has a lead."
"Healthcare has focused on efficiency in different segments of the business, but not on the business as a whole," says Tom Skelton, vice president of research and development for Medic Computer Systems of Raleigh, N.C. Instead of focusing on the individual processes of claim generation and charge entry and the patient check-in/check-out, rather look at what happens from the time the patient enters to the time the patient leaves. Look at the redundancies. This is a workflow problem, complicated by the consequences of mergers and acquisitions.
Different vendor products are only part of the problem, adds Scott Fanner, product manager at Medic. Acquisitions are bringing in an assortment of niche products designed for medical specialties. Now, products must not only resolve the workflow across the enterprise, they must be able to incorporate specialty workflows.
Although there is really nothing new, some issues are intensifying, says Skelton. These primarily surround managed care cost containment and the business model itself. Technology is--and will continue to be--the primary focus in automation, he says, but implementation and training services have become very important in leveraging the technology to reduce the number of full-time employees. Technology alone cannot do it--even the most user-friendly, process-oriented systems. System training is important, but a different kind of office worker may be necessary.
Carew Kerrage agrees. As collection supervisor at billing collection agency Med-Tech Recoveries, Inc., Norristown, Pa., he oversees final collections for a dozen hospitals in the Philadelphia metropolitan area. Hundreds of thousands of dollars are tied up because of incomplete and inaccurate data collection at the time of service, he says. Often originating in the emergency department, the omissions and inaccuracies may seem small--failure to list beneficiary, a birth date omission, a child listed as the insured party--but they also frequently link to other hospital bills. Also they generate an inordinate number of claim rejections that end up in a billing collection agency. Most of the costs are unnecessary and attributable solely to a problem technology cannot totally overcome--of human error.
A slightly different approach borrows a hotel business model to automate financial transactions. Six months of customer research identified patient receivables as a high volume, low dollar nightmare for Deb Hubers, president of Imperial Technology Solutions (ITS), Redondo Beach, Calif., a subsidiary of Imperial Bank. But the organizations did not want to change their information systems. They had large capital investments and wanted to maintain them. They wanted a plug-and-play solution.
Partnering first with IDX Corp. for an installation at Duke University in 1997 (See Case in Point below), ITS has since added clearinghouses, third-party payors and three other healthcare vendor partners: Epic, Medic and Visteon. For organizations operating a system from any one of the four healthcare vendors, a workstation can also be a patient collection station where patients can pay everything from co-pays to amounts exceeding insurance caps using common credit cards. Granted, the patient must have a credit card, but in large part, invoices are out and rapid payments are in. A new way of automating patient receivables also is in.
The timing is right. The medical industry changed, managed care changed and consumers are changing--becoming more involved in the payment process, says Hubers, adding, "Now is the time for healthcare to take existing technology and apply it to the industry."
TRADITIONAL HEALTHCARE INFORMATION SYSTEM VENDORS continue to grow in the financial software application market, somewhat protected from larger vendors by the healthcare industry’s unique financial requirements, says Dennis Byron, research manager of vertical industry applications at International Data Corp., Framingham, Mass. But he doesn’t think that will last forever.
Sooner or later, says Byron, healthcare will get caught up in the cross-verticalization trend now under way. The largest players in the application market--SAP, BAAN and Oracle--are beginning to move their focus from manufacturing to other industries. Though not the first to be targeted--retail and government have that honor--healthcare won’t be far behind. One of his predictions is an SAP market debut. If, he conjectures, through partnering or purchase, SAP adds a few bells and whistles to their accounting system and brings in some complementary, departmental applications, they could call it R3 Healthcare--and voilá--we have a full-blown competitor with HBOC. But it won’t be easy for such an entry, Byron warns. Unlike any other industry, healthcare organizations present a formidable front. They are large, well-established and have a core expertise that will be tough for an SAP to emulate. He doesn’t think a BAAN will even try.
Smaller players are very much alive--even doing very well. Lawson’s early foray into healthcare is paying off--it expects 40 percent of its business to be in that market by the year 2000. Another company to watch is this arena is PeopleSoft. It is already an SMS partner for financials and Byron expects PeopleSoft to make more of a mark given its targeted accounting package and human resources market presence.
Movement in the other direction, that is, healthcare vendors moving into other industries, is less likely. In general, the HBOCs, IDXs, SMSs and MEDITECHs of the world don’t have a lot of options, says Byron, although they are moving beyond traditional boundaries into insurance. Their growth opportunities are geographic. Some have already moved into the U.K. and, from there, into continental Europe; others are still in the planning stage. "That won’t be a cakewalk either," notes Byron. European vendors will seek to protect their markets. One example is U.K.-based computer services provider Misys’ recent acquisition of Raleigh, N.C.-based Medic Computer Systems. "You can expect to see more of that," he predicts.
In the short term, the differences between the U.S. and the European market are very distinct. However, Byron points out, the U.S. markets is becoming more regulated as the European market becomes less so. It may well play out that the two markets will converge on a middle ground, enabling IT vendors to provide one product that works in both places.
His long-term view is a restructuring of industries. He forecasts the demise of information technology in the insurance sector with half going to financial services and half going to healthcare. It is unlikely the insurance industry will sit idly by.
New IDC Survey Results
THE HEALTHCARE APPLICATION SOFTware market showed more than 20 percent growth in 1997 over 1996 according to a recent survey conducted by International Data Corp. (IDC) of Framingham, Mass. Now it’s the fastest growing market covered by IDC. Dennis Byron, research manager of vertical industry applications, comments, "Growth will have to slow down but I don’t think it’s going to fall off a cliff."
CASE IN POINT
Financial Systems Reduce Costs and Improve Customer Service
Inefficiencies tend to be magnified inan operation as large as the Private Diagnostic Clinic (PDC) in Durham, N.C. where providers in more than 75 different clinical sites see more than 2,500 patients per day. Always seeking more efficient solutions, Duke University Medical Center-associated PDC has been aggressive in using technology to streamline workflow and reduce costs. Recent projects add integrated solutions to target patient collections, patient eligibility and benefit verification and customer services. "The key for us is integration with the host system," says Scott Williams, director of billing and collections. And each of the new systems is--or will be--integrated with PDC’s host IDX system.
Accounting for about 20 percent of PDC’s $175 million accounts receivables, patient receivables had already benefited from the move to collect payments at the time of service and credit card payments. Even so, the process was slow and disjointed. The clinic needed collection efficiency that slowed neither the patient nor the business operations so, when presented with the opportunity to integrate credit card processing into its host billing system, Williams declares it a no-brainer. After the fact he says, "Not only does it save time and money, it’s good for customer service."
An early adopter of the integrated credit card processing system from IDX partner Imperial Technology Solutions (ITS) of Redondo Beach, Calif., PDC installed the system in July 1997. With nearly a year’s experience now, Williams says, "Credit card integration adds efficiency and dovetailed nicely with our existing front-end collection efforts." PDC has increased its collection rate, using the system for all patient co-pays, deductibles, co-insurance amounts, non-covered services, deposits on surgeries and maternity and outstanding balances. Both Williams and health systems user analyst Bryan White report that users and patients alike transitioned easily to the new solution. Front-end personnel like it because it’s fast and easy to use. Employees at remote sites like the move from decentralized to centralized account balancing that has resulted from direct posting. Both agree that patient acceptance has been good.
The ITS/IDX integrated system paid for itself in less than a year, says White. In addition to soft personnel savings, PDC can document cold, hard savings on telephone lines--or rather, the lack of them. Not only have they been able to remove 58 existing lines formerly dedicated to credit card processing devices, they didn’t add the 142 that would have been required to bring all locations up to speed.
More recently, PDC installed a new IMNET imaging system, again, integrated with the host system, to store and retrieve insurance carriers’ explanation of benefit (EoB) forms. Not only does PDC use the EoBs to post payments, explains Williams, but patient inquiries cause customer service personnel to review them about 10,000 times a week. Although this is an expensive system, he says a cost/benefit analysis pegged a year and a half for return on the investment.
Another IT project will add an automated patient insurance coverage and eligibility automation to address the insurance denial problem. Many--3,000 a week--are related to incorrect registration information, says Williams. PDC has had automated applications, but they were separate systems--users had to go to another PC or open another window. "It was better than manual," he says, "but the integrated solution will provide direct access via one keystroke."
PDC also plans to increase its use of telephony to deal with more of the clinics’ 3,000 weekly incoming calls in the patient accounts area. It will add another integrated solution from IDX partner, SmartTalk, in the hopes that newer technology and smarter applications can raise the volume of calls resolved by telephony. It also plans to use automated telephony to respond to patient requests for laboratory results and to generate appointment reminder calls, the latter eliminating about 2,000 letters per day, each at a cost of 45 to 50 cents.
PDC continues to actively embrace new technology solutions in the quest for streamlined workflow processes and cost savings. Improved patient services are a real bonus. Williams says, "It’s a double whammy if you can deliver better customer service andsave costs."
Charlene Marietti is senior technology writer at Healthcare Informatics.