How Kaiser Permanente Went Paperless

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In 2008, health-care spending in the U.S. reached $2.4 trillion. As much as 30% of that spending goes to ineffective or redundant care, according to studies published between 2002 and 2004 by doctors Elliott Fisher and John E. Wennberg at Dartmouth. Digital health records can improve care by reducing the incidence of medical errors and eliminating duplicative procedures. For instance, electronically stored results of such tests as an MRI or CT scan can be more readily accessible to a wider range of care providers—say, a doctor in an emergency room in a city far from a patient's regular physician—reducing the need for a repeated procedure. As records are integrated with a pharmacy, a doctor or nurse can tell whether a patient hasn't filled a prescription.

Unknown, If Any, Cost Savings Benefit

How much those efforts reduce overall costs is another matter. Sure, electronic medical records reduce waste, such as duplicate office visits and tests, but patients who live longer may ultimately end up consuming greater health-care resources. At Kaiser Permanente, within the first 18 months of installing electronic medical records, the rate of patient visits to doctors' offices and clinics and the emergency department falls by about 7%, Wiesenthal says. Even as Kaiser cuts waste, it adds technology such as software that can perform even more advanced analysis of records, helping doctors make better treatment decisions—and make patients healthier. "We like what we get for the money but we're not going to save any money," Wiesenthal says. "Nobody is going to save any money."

Marc Holland, program director for health-provider research at market research firm Health Industry Insights, concurs. "The bottom line is that a lot of this investment is being made on a combination of faith and a broad interpretation of dozens of reports," Holland says. "There is no hard evidence that if you invest $20 billion, you'll get back $200 billion."

Cost savings or no, Kaiser Permanente patients say they appreciate the convenience and efficiency that electronic health records provide. Christine Neer, a 38-year-old new mother, says she likes being able to make appointments online and having the ability to securely e-mail her doctor or her son's doctor with questions. After receiving the results of some tests recently, Neer had some concerns, so she e-mailed her doctor in the middle of the night. Her doctor replied the next day.

Kaiser's efforts to use computers to track patients' health reach back decades, but gathered steam in the 1980s and 1990s. An early effort was led by Wiesenthal, who joined Kaiser Permanente in 1983 as a clinician in Colorado. "I wanted to make care better," he says. Eventually, he and others realized electronic data about patient care would be vital to understanding the outcome of that care. Wading through paper files was nearly impossible. "So, very naively, because I have no training as an engineer, I decided we needed an electronic medical record," Wiesenthal says.

Private-Practice Doctors Are Slow Adopters

In 1991, Kaiser's operations in Colorado signed a joint development agreement with IBM's Watson Institute for an e-health program called Clinical Information System. By 1998, deployment was completed in Colorado. Kaiser Permanente decided to take that system nationwide and asked Wiesenthal to help lead the project. In 2002, the system was ready and was being piloted in Hawaii. Kaiser's Southern California operations were weeks away from using it when Halvorson, the then-new CEO of Kaiser Permanente, decided to consider commercial alternatives. Ultimately, Kaiser decided to scrap the Clinical Information System and go with an alternative from Epic Systems. Despite the cost and proven effectiveness in certain regions, Kaiser decided that internal development would take longer and be more costly than a commercial system.

As a so-called integrated health system, Kaiser Permanente is different from other providers not only because it owns the hospitals, pharmacies, and labs but also because the physicians in the Permanente Medical Groups only see patients insured by Kaiser. Unlike most physicians, who are paid by the office visit or procedure, Kaiser doctors are paid salaries. This is an important distinction because Kaiser Permanente as an organization bore the costs of implementing the system and has the power to mandate that doctors use it.

At NorthShore University Health System, just north of Chicago, the situation is more typical of hospitals that work with independent doctors. In 2003 and 2004, NorthShore implemented electronic medical records from Epic Systems at three hospitals and 65 medical group offices. Over the past five years, the organization has tried to encourage independent physicians to adopt it, offering 50% discounts on the Epic software. Still, industry experts say it can easily cost $50,000 or more to get a small office up and running. So far, 15 independent offices have installed the software. Today about 60% of the patients who come into the emergency department at NorthShore have a full electronic record, with medications and allergies listed, all of which helps increase patient safety. NorthShore CIO Tom Smith hopes to raise that to 75% or 80% over the next few years as more doctors adopt the technology because of the stimulus funding. Even so, he doesn't expect to get to 100%.

Money is only part of the issue. "A big part of this is the doctor's time to get it set up," Smith says. The installation takes about three months from start to finish. During that period, a doctor needs to be involved about one day a week. Then, while physicians are getting up to speed they typically cut back their patient load by half for at least the first couple of weeks. "It's not a quick process," says Smith, adding that some doctors can get back to a full patient schedule in seven or eight weeks. For some it can take as long as six months. Either way, they lose revenue or work overtime to make up the difference—and learn a new way to work with patients.

Benefits Largely Don't Go to Doctors

The bulk of U.S. health care is a collection of small practices. Wiesenthal estimates that the first-year cost of installing e-health records for a three-doctor practice is somewhere around $70,000 to $80,000 per doctor. The benefits of digitizing health records are largely realized by entities other than the doctor, including the patient, the hospital, the health plan, and the pharmacy. In fact, if waste does come out of the system, physicians can expect fewer patient visits in the near term. "Explain to me again why the doctor down the street wants to spend $80,000 to put in a system so that Walgreens (WAG) can save money," Wiesenthal says.

Svetlana Kogan is asking herself that same question. As a private practitioner of internal medicine on the Upper West Side of Manhattan, Kogan says she thinks electronic medical records wouldn't improve how she practices medicine. She sees the value of e-records in hospitals and she uses the electronic medical records system at Lenox Hill Hospital when she's there. But using a computer in the examining room would be an impediment to how she communicates with patients, she says. When she inquired two years ago about the cost of a system for her office, she received a quote of $90,000. "For a practitioner who gets paid $30 to $40 for a regular visit, how many patients do we need to see to make up for the system?" she says. "It's unrealistic."

CIOs at a number of hospitals say that getting doctors to change how they work is one of the biggest hurdles. When this software is first introduced at a location, Kaiser typically cuts doctor patient loads by 50%. Most people bounce back to full volume in about two weeks, Wiesenthal says. "That doesn't mean they're happy," he says. "In fact they're quite angry two to three months out because they're working hard and things aren't habitual yet."

Inconveniences aside, most doctors don't want to go back to a paper-based system once the new approach is in place, Wiesenthal says. He and other Kaiser officials tell the story of a patient who was visiting an allergist when a nurse, using electronic records, happened to notice that the woman was overdue for a mammogram. The nurse walked the woman over to get a mammogram right then. Turns out the patient had breast cancer but it was caught very early. For Wiesenthal, outcomes like that make e-health records more than worthwhile.

Business Exchange related topics:
Electronic Health Records
U.S. Healthcare System
Data Storage

King is a writer for BusinessWeek.com in San Francisco.