80303612

1. 21st Century Health Care: The Information Technology Impact on the Quality and Cost Effectiveness ofHealth Care William S. Bernstein, Esq. Co-Chair, Government and Regulatory Division Manatt, Phelps & Phillips, LLP June 25, 2004 80303612

2. Table of Contents • State of U.S. Health Care System • Why Investing in Health Information Technology Matters • Where We Stand Today: Why Investment Has Not Taken Place • What Needs To Be Funded and What We Would Hope to Achieve • A Proposed Solution: Creation of a Healthcare Information Technology Revolving Loan Fund Program

3. State of the U.S. Health Care System • Changing Demographics: Americans age 65+ will increase from 12% of population in 1997 to 20% of population in 2040 • Rising Health Care Costs: Premiums increased 12.7% in 2002, 8 times the general rate of inflation and are likely to be higher thisyear

4. State of the U.S. Health Care System • Healthcare Professionals In Crisis: Physicians leaving practice as a result of rising malpractice costs; Shortfall of 400,000 nurses nationwide • Persistent Problems of Uninsured Continue: Approximately 15.2% of all Americans lack insurance coverage

5. State of the U.S. Health Care System • Enormous Quality and Safety Issues Plague U.S. Health Care System • Unacceptable Rate of Practice Variations leading to $450 billion in unnecessary spending according to one recent study • Staggering number of preventable medical errors kill more people annually than motor vehicle accidents or breast cancer • Adverse drug events in 5% to 18% of ambulatory patients • 17 years for new knowledge generated by randomized controlled trials to be incorporated into practice

6. State of U.S. Health Care System 5 Visual Images To Remember

7. US $5,473 5 Countries $2,876 G-7 $2,191 1970 1980 1985 1990 1995 1996 1997 1998 2000e 2001e 2002e High Costs Health Care Spending Per Capita 6.9% 4.8% 3.1% Source: Health, United States, 2002Five Countries: Luxembourg, Canada, Germany, Norway, SwitzerlandG-7 Countries: Canada, France, Germany, Italy, Japan, United Kingdom

8. Unnecessary Costs % of Health Expenditures Unnecessary Necessary Cost Cost 30% 70% Project Hope, Wennberg et.al., 2003

9. Number of Uninsured Source: U.S. Census Bureau, Current Population Survey, 2002 and 2003 Annual Social and Economic Supplements

10. Poor Quality 45% Right Wrong 55% 45% 70% RAND, 2003 “...17 years...” - IOM Report: Crossing the Quality Chasm, 2000 “...44,000 to 98,000 deaths...” - IOM Report: To Err is Human, 1999

11. Poor Access to Information

12. Why Investing in Healthcare Information Technology Matters • Evidence Shows Investment Can: • Save Money • Improve Quality • Thereby, allowing for expansion of coverage to the uninsured • Saving Money • The Institute of Medicine estimates that medical errors cost the Nation $37.6 billion each year; about $17 billion of those costs are associated with preventable errors

13. Why Investing in Healthcare Information Technology Matters • October, 2003 GAO Report found that the 10 health care delivery organizations reported 13 examples of cost savings resulting from the use of IT, including reduction of costs associated with medication errors, communication and documentation of clinical care and test results, staffing and paper storage, and processing of information. • Center for Information Technology Leadership study indicated $44 billion in savings (prevention of more than 2 million adverse drug events and 190,000 hospitalization per year) could be realized from adoption of Computerized Physician Order Entry (CPOE) in an ambulatory care environment

14. Why Investing in Healthcare Information Technology Matters • New England Healthcare EDI Network has resulted in substantial administrative savings for both payors and providers alike - - i.e. Cost of eligibility check reduced from $4.74 to 15 cents • A recent cost benefit analysis of electronic medical record systems showed that their use by primary care providers could result in $86,000 in savings over 5 years. Benefits include: reduced drug spending, reductions in radiology, and decreased billing errors.

15. Why Investing in Healthcare Information Technology Matters • Improving Quality • At Brigham & Women’s Hospital, Computerized Physician Order Entry reduced error rates by 55% - from 10.7 to 4.9 per 1000 patient days • A recent study of intensive care patients by Kaiser Permanente found that when physicians used a computerized system, the incidents of allergic drug reactions and excessive drug dosages dropped by 75%; the average time spent in the unit dropped by 4.9 days to 2.7, slashing costs by 25%

16. Why Investing in Healthcare Information Technology Matters • Harris Interactive & Boston Consulting Group Poll • 36% physicians said e-prescribing improving efficiency • 45% physicians said e-prescribing improves compliance with formularies • 33% physicians said e-prescribing has a major impact on quality of care

17. Where We Stand Today: Why Investment Has Not Taken Place • IT Investment in Health Care Very Low Percent of Revenue for Information Technology 2002

18. Where We Stand Today: Why Investment Has Not Taken Place • Government spends its health care dollars elsewhere 364600 2216 1852 100

19. Where We Stand Today: Why Investment Has Not Taken Place • The Result is Not Surprising • More than 90% of an estimated 30 billion health care transactions each year are conducted by phone, fax or mail • Less than 5% of physicians use electronic health records • According to a recent JAMA study, only 9% of medical decisions are rated as “informed decisions.”

20. Where We Stand Today: Why Investment Has Not Taken Place - • STANDARDS: Lack of adoption of interoperable systems and data standards • LEADERSHIP: At the national level, at the community level, within provider institutions and clinician practices • FUNDING AND BUSINESS MODEL: Misalignment of incentives among those who pay for IT and those who benefit from it. Lack of upfront and ongoing operating capital for investment in IT infrastructure • WORKFLOW ISSUES: Organizational change issues Barriers To Adoption of IT

21. What Needs To Be Funded And What We Would Hope To Achieve • Medical Services Area • Manageable size • Could be a city, county • A Community is not • Physician Practice • Hospital • Integrated Delivery Network • County Health Department 180Physicians 2Hospitals 100,000Population 3Labs 6Pharmacies

22. What Needs to be Funded And What We Would Hope To Achieve Patient Data Medical Knowledge Couple Identify Patient-SpecificIssues Communicate Care Considerations to treating physician and patient

23. Patient Data Medical Knowledge Cost Information RX Lab Data Capture Order Entry/ Decision Support Specialist Primary Care Physicians Hospital Nursing Home Background Applications Clinical Data Sharing Master Patient Index Security Best Practices System Administration Private HomeHealth Rehab Public PatientInformation What Needs to be Funded And What We Would Hope To Achieve Patient Data

24. Treatment Diagnosis Redundancy Errors What Needs to be Funded And What We Would Hope To Achieve Eliminating High Costs % of Savings Generated Decision Support Systems Electronic Health Record Clinical Data Sharing Source: Center for Information Technology Leadership, 2003

25. What Needs to be Funded And What We Would Hope To Achieve Business Platform Which Shares Costs and Benefits of ITInvestment Others Providers Source: Center for Information Technology Leadership, 2003

26. What Needs to be Funded And What We Would Hope To Achieve Business Platform Which Shares Costs and Benefits of IT Investment State/Local Households Medicaid Medicare Employers Source: Health, United States, 2002

27. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • The Government can best achieve its objectives with respect to healthcare information technology investment through a public-private partnership model [the “PPP Model”] • Key characteristics of public-private partnerships include: • Compelling public policy need for investment; • Recognition that investment either would not happen, or would happen at an unacceptable cost or timeframe, without creation of the PPP;

28. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • Structure which enables government to reduce its costs while at the same time improving the level of quality of services to the public; • Economic platform which is “financially free-standing” allowing projects to be privately financed and operated based on revenues received for the delivery of goods and services

29. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • There is a long and successful history of funding essential infrastructure through Federal/State Revolving Loan Programs Federal Revolving Loan Fund Programs TotalFunding Commitments & Amount of Projects Financed (Figures are aggregate through June 30, 2002)

30. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund Contributions Partnership Cash Flows • Federal/State Contribution • AHRQ Grants • Agreement with Medicare and Medicaid Programs • Provision of Federal Bond Insurance • State Issued Bonds Tax- exempt or Taxable • Income • Grant Funds • Lease/Loan/Service Contract Repayments • Financing Fees • User Fees (where applicable) State/RegionalHealthcare Information Technology Corporations (HITC) • Expenses • HITC Operating Expenses • Repayment of P & I on Indebtedness • Private Sector • Sponsorship of Projects and Obligation to Repay Indebtedness • Private Foundation Support Net Cash Flow HITC Share Government Sector Share PROJECT SPONSORS

31. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • Through supporting community-wide planning, provide long term term financing for multi-stakeholder projects that invest in information technology for the purpose of promoting good quality and efficient healthcare • Ingredients to Success • Multi-Stakeholder Participation • Information Technology • Clinical Best Practices/Process Improvement • Physician Adoption • Alignment of Financial Incentives Between Purchasersand Providers of Care

32. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • Key Structural Features • Federal/State funds used to create Revolving Loan Fund program which supports healthcare IT infrastructure projects • Initial funding could come from allocation of dollars used in connection with administration of Medicare and Medicaid programs • Federal government provides qualified projects with insurance allowing for low borrowing rates. Initial funding by Medicare and Medicaid programs can be leveraged to create larger capital financing program • State government issue tax-exempt and taxable bonds to fund qualified projects

33. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • Project sponsors obligated to repay project indebtedness. Funds collected in excess of funds required to repay debt service used to fund additional projects • Project sponsors obligated to pay financing fees which fund operations of administration of program by not-for-profits, Healthcare Information Technology Corporations, the Boards of which consist of private citizens and government appointed designees • Based on other RLF programs, other features of the public-private partnership program may include a requirement that Fund administrators put up matching funds equal to up to 20% of the federal contribution

34. A Proposed Solution: Creation of an Information Technology Revolving Loan Fund • Broad enabling legislation ensuring: • Federal funding of corpus of loan funds to be administered by HITCs; and • Project selection authority which allows for meeting of needs of local communities, while at the same time ensuring compliance with Federal standards; and • Provision of a wide selection of credit facilities to eligible projects, including low or no interest loans, credit enhancements, such as lines of credit and payment guarantees, subordinated loans, risk pooling and extended repayment schedules; and • Grants for safety net facilities and rural health providers; and • The authority to provide technical assistance to eligible projects, including assistance with the funding applications, financial plan preparation and project design