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Allscripts-Misys pitches its own electronic records 'stimulus plan' to physicians

by Charlie Mead
Feb 25, 2010


Stimulus Funds/Health IT

U.S. Department of Health and Human Services/Charlie Mead/MEDILL

Allscripts-Misys hopes to bolster sales of electronic health records systems by guaranteeing health care providers the ability to access stimulus funds.

"Meaningful Use"

Proposed "meaningful use" rules are set out by the Department of Health and Human Services. The comment period ends March 15.

Stage 1 of the standards kicks in next year, and health care providers must show "meaningful use" in the following areas of their electronic medical record system:

-Interoperability

-Functionality

-Utility

-Information security


Allscripts-Misys Healthcare Solutions Inc. is riding the stimulus wave into 2010 by boldly guaranteeing physicians that its electronic health records software will fulfill the government's standards to qualify for Medicare or Medicaid refunds.

But the government has yet to announce those standards.

The pitch offers a strategic glimpse into an industry rife with insecurity, as purveyors of health care information software scramble to book clients without knowing for sure the specific criteria their products must achieve. The government's economic stimulus plan allocates huge sums to encourage adoption of electronic health records.

“This is really going to be an elbow-to-elbow, gladiator type fight,” said Brenda Gleason, president of Washington D.C.-based M2 Health Care Consulting LLC, of the competitive landscape among vendors.

The pledge could prove a clever tactic for Allscripts-Misys, which hopes to entice health care providers with a near-certainty that they'll obtain government funds.

The American Reinvestment and Recovery Act, which just celebrated its one-year anniversary, allocates $19 billion to health information technology infrastructure. Assuming that means more and more physicians will switch from hand-written records to electronic, the government estimates savings of more than $12 billion from quality of care improvement, enhanced coordination among providers, and reductions in medical errors and duplicative care.

“That’s why we have this stimulus, to at least get the docs to jump in, adopt the technology,” said Richard Close, an analyst with Jefferies & Co. Inc.

The federal push includes more than $750 million in grant awards from the U.S. Department of Health and Human services to facilitate adoption of electronic health records, or EHRs—a fancy way to describe moving  paper-based medical files online.

“The implementation of electronic health records is a must for health care, period,” said Robert Brenner, chief medical officer of New Jersey-based Summit Medical Group, a multi-specialty practice with more than 150 doctors and an Allscripts client.

An important portion of the federal grant money begins paying out in 2011, making 2010 a golden opportunity to entice buyers. If a physician’s practice includes more than 30 percent Medicaid patients, it could qualify for up to $64,000. Medicare incentives could approach $44,000; hospitals could get up to $11 million, paid out over five years.

“Allscripts is well positioned to benefit from the [stimulus], namely due to its large user base,” stated Corey Tobin, an analyst with Chicago-based William Blair & Co. LLC, in a January research note.

Allscripts Inc. merged with Misys Healthcare nearly two years ago, a move that created a combined clientele of more than 150,000 U.S. physicians and 700 hospitals, according to a 2008 release.

“That merger essentially gave Allscripts a captive base to sell into,” Close said. “Now they have the ‘in’ with those particular clients.”

The timing is propitious, for the company has strengthened its financial position.

Allscripts-Misys brought in $169 million in revenue in the three months ended Nov. 30, up nearly a third from the year-earlier period, and earned $15.8 million, or 10 cents per diluted share, a vast improvement from a loss of $6 million, or 5 cents per diluted share.

The company's gross margin—the difference between sales and production costs—was 56 cents per dollar in the quarter, up 17 percent from the year-earlier period.

Shares closed at $17.91 Feb. 23, up considerably from its 52-week low of $7.61 in March, but coasting downward after a high of $22.21 in October. Its price to earnings ratio stood at 32 on Feb. 23, making the stock relatively expensive compared to the Standard & Poor's 500 Stock Index’s 18.

The company issued guidance of a profit of $64.5 million to $66 million, or 41 to 43 cents per diluted share, for its fiscal years ending in May. The estimate comes just below an average analyst estimate compiled by Bloomberg of 45 cents per diluted share in fiscal 2010; analysts estimate just over 60 cents per diluted share for fiscal 2011.

High profile signings also add credence to the Allscripts electronic records system. The company announced Feb. 10 that Long Island-based Nassau Health Care Corp. would adopt the system, a deal valued at $5 million.

“We talk about 2010 as the year of the Electronic Health Record,” stated Allscripts CEO Glen Tullman during a Feb. 8 conference call, according to a transcript compiled by Bloomberg LP. “This is the largest incentive package ever for an industry, other than perhaps banking, but that was more of a repair job.”

The government incentives represent an attempt to encourage essential upgrades among hospitals and smaller practices that are behind the technology curve and wary of steep initial costs.

"It’s not new,” said Proteus Duxbury, managing enterprise architect at London-based PA Consulting Group Ltd., of the technology. “But there are still some providers that don’t have electronic health records. That’s quite scary.”

In the late 1990s, the Institute of Medicine estimated that as many as 98,000 Americans die in hospitals each year as a result of medical errors.

Brenner said Summit Medical Group began a review of potential EHR services in 2002, well before the current incentive structure was in place, to coordinate records among a growing number of satellite offices. Allscripts’ Enterprise software system enabled SMG to jettison its “bucket service,” Brenner said. “We had literally an antiquated service that would drive medical records for people that had prescheduled appointments from one location to the other. Or there were people running around with large carts.”

Brenner went on, "in early 2007 we were completely paperless,” adding that medical errors have unquestionably declined after implementing the EHR system. “Allscripts has been a great company to work with,” he said.

The government largesse has a big string attached: the grants will go only to systems that are put to "meaningul use." So on Dec. 30 the Centers for Medicare and Medicaid Services proposed rules to define “meaningful use.” A public comment period ends March 15.

The uncertainty of the rules poses a dilemma for EHR vendors striving to take advantage of the government money. “They have loaded their guns and are waiting to aim at a target,” said John Tempesco, vice president of client services at Informatics Corporation of America Inc., a rival vendor of Allscripts-Misys. “The last thing we want to do as vendors is to begin developing a solution that doesn’t meet the final ruling of ‘meaningful use.’”

“Right now," remarked Gleason, the Washington consultant, "you have to go in and with a straight face tell a customer that you’re not sure whether or not the product you want to sell them will meet the requirements of the federal government. How do you do that?”

The bureaucratic ambiguity hasn’t thwarted Allscripts-Misys. The company has seized the uncertain moment with its own “Stimulus Program,” which provides physicians “a guarantee that the Allscripts EHR they select will meet the EHR certification criteria,” according to a Jan. 11 news release from the company.

However, the tactic isn't universally admired. Duxbury, the London consultant, considers the guarantee deceptive. “I think it’s misleading of the vendors,” he said. “To say, ‘Don’t worry, go with us, you’re going to get the money’ is not true.”

To back up its promise, the company says it will waive up to 12 months of monthly support fees should its system fail to meet the government's EHR certification criteria.

The company is also offering financing assistance--interest-free loans and connections to selected banks--to health care providers that go with their system, to combat the tight credit market that has gripped business investment in the wake of the global financial crisis. This Duxbury likes. “They are being very clever,” he said.

But alluring stimulus incentives may not even be the biggest driver for EHR adoption. The government will penalize—through reduced Medicare and Medicaid payments—healthcare providers that fail to embrace the electronic transition by 2015. Ultimately every provider will need to be EHR-compliant or face steep costs. Fines are the real timeline drivers, Duxbury says.

“The bottom line is, they have to do it,” Gleason said of the providers.