Magazine

Electronic Medical Records: A Silicon Valley Gold Rush


(Corrects reference to illness and specialist in the seventh paragraph.)

Patients at Dr. Surinder Saini’s Newport Beach (Calif.) office are no longer given a clipboard upon arrival. Instead, they’re handed an iPad, where they tick off symptoms and allergies with the touch of a finger. A nurse uses her own iPad to plug in vital signs. In the exam room, Saini summons the data by tapping on his tablet and is aided by a list of likely diagnoses for, say, abdominal pain. “Most patients are amazed,” says the gastroenterologist. After the visit, Saini dictates his notes about the patient straight into the iPad, where they’re instantly transcribed and stored with other records.

Lured by new technologies and financial incentives from the U.S. government, doctors are throwing out stacks of paper and replacing them with handheld computers. The programs, made by heavyweights such as Allscripts (MDRX) and Cerner (CERN) as well as a raft of scrappy Silicon Valley startups, promise to save physicians time and help them make smarter decisions based on reliable data that are accessible online. An extra nudge comes from the 2009 economic stimulus, which set aside $27.4 billion to jump-start the switch to electronic records. The law offers doctors up to $63,750 over five years to help pay for the change if they can prove they’re making “meaningful use” of the systems by, say, submitting prescriptions electronically.

Tech investors and entrepreneurs see a gold rush akin to the social media boom. About 750 companies have jumped in, more than doubling the number of vendors in two years, according to investment bank Piper Jaffray (PJC). That surge has many in the industry worried that consolidation is inevitable. “I call them zombie electronic record companies,” says David J. Brailer, chairman of Health Evolution Partners, a San Francisco private equity firm, and health information technology coordinator for the George W. Bush Administration. “They have a product. They have money on their balance sheet. They have a few customers. And they have no future.”

Through August, 90,000 of the roughly 530,000 eligible Medicare and Medicaid providers—hospitals, clinics, and private practices—had registered to participate, with about 7,000 receiving initial payments for demonstrating meaningful use of digital records, government figures show. Spending on electronic systems by health providers could grow 76 percent to $32 billion by 2015, according to Kalorama Information, a Rockville (Md.) research firm.

One problem is uncertainty about the technology. In an attempt to create more innovation, the law didn’t specify how electronic systems should talk with one another. It’s unclear which ones will survive, which has some physicians holding back. “There is a belief among many of us that somewhere in the 5- to 10-year range, many of the current products will become, in essence, obsolete,” says Joseph Schneider, medical director of clinical informatics at the Baylor Health Care System, a Dallas hospital group.

The shakeout has already started. In July, McKesson picked up insurance software supplier Portico Systems for $90 million; insurer Aetna (AET) bought health information exchange company Medicity in December for $500 million. Allscripts last year paid $1.3 billion for Eclipsys, which sells technology to hospitals. “Industry consolidation is real, and it’s happening now,” says Allscripts Chief Executive Officer Glen Tullman. That has companies scrambling to lock in customers early. “Because the switching costs are so high,” those with the biggest market share have the best shot at surviving, says Sean Wieland, a technology analyst at Piper Jaffray.

Some app developers aim to secure a place among the survivors by selling doctors add-ons such as electronic billing and digital prescriptions. Drchrono, the Mountain View (Calif.) company that makes the iPad app Dr. Saini uses, offers its software for free through Apple’s App Store. The company, funded by Facebook backer Yuri Milner and venture capital firm General Catalyst Partners, has signed up more than 9,300 doctors. Creating and maintaining medical records on Drchrono is free, but some doctors pay monthly fees of $200 for transcriptions of their notes and $400 for billing. The program was created in 2009 by computer engineer Michael Nusimow, who saw the need to streamline doctor visits while helping his father through treatment for an illness. “In a 20-minute visit” to the doctor, “over half the time was spent looking at his medications list,” he says.

Many doctors who have made the shift to the new systems aren’t tapping their full power. Only a fraction of physicians use their software to exchange information with other providers because of difficulties transmitting data, says Jonathan Bush, CEO of athenahealth, which sells an Internet-based offering that promises easier communication. “The average doctor,” Bush says, “still receives 1,033 faxes a month even if they have an electronic health record system.”

The bottom line: Spending on electronic medical records may jump 76 percent by 2015, but adoption is being slowed by confusion over technologies.

Eisenberg is a reporter for Bloomberg News.
MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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Companies Mentioned

  • MDRX
    (Allscripts Healthcare Solutions Inc)
    • $14.21 USD
    • -0.21
    • -1.51%
  • CERN
    (Cerner Corp)
    • $58.61 USD
    • -0.31
    • -0.53%
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