Partners on Health Care: Mixed Prognosis

For many channel partners, government action on health care is producing both anxiety and opportunity.

If anyone can appreciate why health care reform has become a top national priority, it's Curtis Hicks.

Hicks, who is president and CEO of Center for Computer Resources, a Gold Certified Partner and integrator in Oak Park, Mich., prides himself on offering health benefits to his employees. But when his insurance rates went up a whopping 22 percent recently, he had little choice but to switch to a higher-deductible plan with less-generous coverage.

So Hicks must be looking forward to passage of the sweeping health care reform legislation working its way through Congress now, right? Wrong. "I don't believe it's going to reduce our costs by any means, and personally it's going to cost me a lot more money as a taxpayer," he says. "The numbers just don't make sense."

And it's not just him. Hicks meets regularly with a group of fellow partners from the metro Detroit region, and they're every bit as nervous about reform as he is. "We're all just very concerned that it's going to cost us a lot more money," he says.

On the other hand, not every federal effort to bend the health care cost curve has Hicks worried. Under the Health Information Technology for Economic and Clinical Health (HITECH) Act, approved last February as part of the government's $787 billion economic stimulus bill, Washington will hand out some $20 billion in subsidies aimed at accelerating adoption of electronic medical record (EMR) systems. Many experts believe that digitizing patient files with EMR software -- and then equipping caregivers and insurers to exchange that information over the Internet -- could ultimately produce tens of billions in annual savings.

Hicks, whose company sells EMR solutions, is already experiencing rising demand even though the government hasn't started handing out money yet. "We're definitely seeing an increase," he says. "EMR is just the buzzword out in the market right now."

In his mix of optimism and anxiety regarding government action on health care, Hicks is typical of many in the Microsoft channel. Health IT initiatives like the HITECH Act, they believe, may soon strengthen their top line. But health care reform, they fear, may soon weaken their bottom line.

Cost vs. Benefit
Of course, for all of the media attention health care reform has been receiving, there are still plenty of partners too busy running their business to worry much about it. "I'm not losing sleep over it," says Jeff Auerbach, CEO of EMR Group Inc., a Certified Partner and solution provider in Tucson, Ariz., that mostly serves small and midsize medical practices. Same goes for Emilie Hersh, COO of InterKnowlogy LLC, a Carlsbad, Calif.-based Gold Certified Partner that provides custom application development and networking services. "I'm not sure it's worth stressing over yet," she says. "Until we see the numbers we won't know how to react."

Yet Hicks is far from the only IT executive feeling the pain of mounting insurance bills. In fact, if you think he got hit with a brutal price hike, consider what happened to Michael Corey, CEO of Ntirety Inc., a database administration services provider and Certified Partner in Dedham, Mass. His rates just went up by a gasp-inducing 47 percent. "It sickens me," Corey says. "It's beyond me in an economy where salaries aren't going up how they can justify a 47 percent increase with a straight face."

In truth, though, health insurance costs have been growing faster than wages for many years. Indeed, between 1999 and 2009, employee earnings in the United States rose by a cumulative 38 percent and inflation rose by 28 percent, according to a joint study from the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust. Health insurance premiums, meanwhile, climbed a staggering 131 percent during that period.

Like Hicks, however, many partners expect reform to have little impact on health care costs. "I'm hoping to get some relief, but I don't think it's going to come, to be honest," says Auerbach. Covering the uninsured will be expensive, he argues, and it's middle-class business owners like him who are likely to end up footing the bill.

Some experts share that fear. Small businesses in particular, they say, could suffer under the government's health care overhaul. "It's really going to hurt the mom and pops more than anybody," predicts John De Palma, national practice leader of UHY Employee Benefits Consulting Services Inc., in Oakland, N.J. The feds plan to fine companies that offer either no insurance or inadequate coverage, he notes, and most such organizations are small businesses. "Potentially, it could become very expensive for these firms," De Palma says.

Such concerns are a big part of why the National Federation of Independent Business (NFIB), an advocacy organization for small businesses, opposes the emerging reform legislation. Skyrocketing health costs consistently rank as the No. 1 complaint among NFIB members, says Michelle Dimarob, a manager for legislative affairs with the group. Yet health care reform as presently written will do little to reduce premiums, she argues, citing a November 2009 study by the Congressional Budget Office (CBO). That report stated that under the reform bill then working its way through the Senate, average insurance payments for companies with 50 or fewer employees would drop by 2 percent at best, and could actually increase by as much as 1 percent. "That's a very big concern," Dimarob says.

But also a misplaced one, argues Terry Gardiner, national policy director of Small Business Majority, a Sausalito, Calif.-based public policy group that largely endorses the government's evolving reform effort. "Small businesses have a lot to gain out of health care reform," he says. With their weaker bargaining power, Gardiner notes, small businesses currently pay up to 18 percent more per worker than large firms for the same coverage, according to a report by President Obama's Council of Economic Advisers. By creating health insurance exchanges -- government-run or sponsored marketplaces in which businesses and individuals can shop for coverage -- reform will promote greater competition and transparency, ultimately yielding lower premiums.

And besides, Gardiner adds, the only meaningful way to evaluate health care reform is to compare it to the alternative, which is doing nothing. National health care expenditures grew by an average of 9.6 percent a year between 1970 and 2007, according to the federal government's Centers for Medicare & Medicaid Services. Without reform, Gardiner says, we can expect similar increases for years to come. In fact, according to a Small Business Majority study conducted by Jonathan Gruber, a health economist at the Massachusetts Institute of Technology, small businesses will pay nearly $2.4 trillion on health care over the next 10 years under the status quo. Depending on how it's structured, though, reform could cut that sum by as much as $855 billion.

As for "pay or play" fines, Gardiner adds, they will apply only to companies with more than 50 employees, over 90 percent of which will be exempt anyway because they already provide coverage. "Nothing is going to change for them," he says. Except, of course, that they'll have easier access to a wider array of lower-priced plans.

A Mad Rush
If you're not sure what to believe about reform by this point, don't worry. You're in good company. Indeed, the tangle of contradictory facts, figures and arguments surrounding the government's health care makeover has a lot to do with why so many partners are nervous about what's to come. "It's very complicated," Auerbach observes. "I'm hoping that someone somewhere is thinking this thing through."

In the meantime, many in the channel are focusing their attention on less complex and more lucrative federal health care initiatives, like HITECH. The CBO expects that program to drive approximately 90 percent of physicians and 70 percent of hospitals to implement EMR systems within the next decade. For partners, that's likely to mean lots of spending on software, implementation services and maintenance. Hoping to cash in, Auerbach plans to increase his payroll from 10 employees to 50 within the next 18 months. "There's a huge opportunity out there," says Auerbach. "There just aren't enough people in IT to fill the demand."

Of course, much of that demand is anticipated versus actual for the moment. The government won't start cutting checks to EMR buyers until January 2011, and though HITECH has been on the books for nearly a year, Obama administration officials are still working out important details. "There's been a lot of pussyfooting around," Auerbach complains. For example, only organizations making "meaningful use" of EMR applications will be eligible for HITECH grants. Yet the government has yet to specify what constitutes meaningful use, who will be responsible for enforcing that standard, or how health care providers can prove that they meet it. In fact, the administration hasn't even finalized its definition of what qualifies as an EMR system yet.

Not surprisingly, then, many physicians are biding their time before buying anything. "There's hesitation on the part of the doctors," Hicks says. "What if they pick a product that isn't going to be qualified?" Auerbach, however, expects activity to pick up in March, when the administration is slated to issue final rules for HITECH. "There's going to be a mad rush," he predicts.

That stampede is likely to boost spending in areas beyond EMR software, experts say. Look for HITECH to stimulate activity in these related markets, as well:

  • Health information exchange (HIE): HITECH includes $564 million in funding for HIE initiatives. Typically organized at a regional or state level, HIEs establish and govern systems for sharing EMR data. "They need software, they need services [and] they need remote hosting," observes Wes Rishel, a vice president and distinguished analyst with IT research firm Gartner Inc.

  • Data mining: As part of an ongoing effort to measure health care quality initiated in 2006, the Department of Health and Human Services offers incentive fees to doctors who submit reporting data on the care they provide. In 2008 alone, those payouts totaled some $92 million. Partners can get physicians in on that action by helping them mine their EMR systems for relevant facts and figures. "It's been a huge business for us, and that's just writing reports," Auerbach says.

  • Business continuity: Doctors who replace paper files with a server can't afford to risk losing all of their records due to a hard drive crash. But few medical practices have the technical know-how to back up data reliably on their own. That spells opportunity for partners offering managed backup services that copy and safeguard patient files remotely.

  • Security: HITECH expands existing government regulations requiring doctors and hospitals to keep patient data private. Yet a 2009 survey by the Healthcare Information and Management Systems Society, a health industry membership organization, found that three-fourths of caregivers who conduct formal security risk assessments uncover vulnerabilities due to poor controls, policies and procedures. That suggests plenty of openings for purveyors of security software and services.

As excited as partners are about those rich potential revenue streams, however, their uneasiness over health care reform persists. Yet no matter how things ultimately shake out, most partners plan to continue offering health benefits to their employees. "You look at that as a cost of doing business," InterKnowlogy's Hersh says. "Happy employees and healthy employees are the ones that are going to serve our customers best."

Hicks agrees, noting that IT businesses are ultimately only as good as their coders, salespeople and support staff. "Our assets wear shoes, which means we absolutely have to take care of our people," he says. All that remains to be seen is whether meeting that responsibility is about to become a little bit easier or a little bit harder.