The Value of Healthcare Information Exchange and Interoperability

Transcription

1 The Value of Healthcare Information Exchange and Interoperability

2 Authors Eric Pan, M.D., M.Sc. Douglas Johnston, M.A. Janice Walker, R.N., M.B.A. Julia Adler-Milstein, B.A. David W. Bates, M.D., M.Sc. Blackford Middleton, M.D., M.P.H., M.Sc. Expert Panel David J. Brailer, M.D., Ph.D. William R. Braithwaite, M.D., Ph.D., F.A.C.M.I. Paul C. Carpenter, M.D., F.A.C.E. Daniel J. Friedman, Ph.D. Robert Miller, Ph.D. Arnold Milstein, M.D., M.P.H. J. Marc Overhage, M.D., Ph.D., F.A.C.M.I. Scott S. Young, M.D. Kepa Zubeldia, M.D. Requests for permission to reproduce any part of this work should be sent to: Ellen S. Rosenblatt, Program Manager Center for Information Technology Leadership Partners HealthCare System 93 Worcester Street Wellesley, MA

3 The Value of Healthcare Information Exchange and Interoperability Partners HealthCare System Boston, Massachusetts

4 2004 by the Center for Information Technology Leadership Published and distributed by the Healthcare Information and Management Systems Society (HIMSS). All rights reserved. No part of this publication may be reproduced, adapted, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Requests for permission to make copies of any part of this work should be sent to Ellen S. Rosenblatt, Program Manager Center for Information Technology Leadership Partners HealthCare System 93 Worcester Street Wellesley, MA [email protected] ISBN X For more information about CITL, please visit

5 Contents CITL Preface...v Executive Summary...1 Chapter 1: Introduction...7 Chapter 2: Approach to Analysis...13 Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories...21 Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers...33 Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies...47 Chapter 6: Benefit of Interoperability between Providers...57 Chapter 7: Benefit of Interoperability between Providers and Public Health Departments...67 Chapter 8: Benefit of Interoperability between Providers and Payers...79 Chapter 9: HIEI Costs...95 Chapter 10: Net Value of HIEI Chapter 11: Limitations Chapter 12: Conclusions Appendix 1: Methods iii

6 Appendix 2: Literature Search Strategy Appendix 3: Model Building Blocks Appendix 4: Expert Panel Biographies Index The Value of Healthcare Information Exchange and Interoperability

7 Preface CITL We are pleased to present CITL s report on The Value of Healthcare Information Exchange and Interoperability. CITL s mission is to illuminate the value of specific healthcare information technologies. We hope our analysis is helpful to healthcare leaders who wrestle with IT investment decisions, to solutions providers who develop systems to meet their needs, and to policymakers who consider incentives to encourage the adoption of information technologies in healthcare. CITL is ultimately responsible for the content of this report. However, we had a great deal of assistance along the way, and we are indebted to many contributors and reviewers. In addition to our Expert Panelists, we owe special thanks to W. Holt Anderson, Dr. Peter Basch, Cynthia Bero, Jeffrey S. Blair, Joseph Brenner, Dr. Monte Brown, Jonathan S. Bush, Dr. Wei-Ti Cheng, Brian F. Chiango, Gary Christopherson, Dr. Christopher G. Chute, Gregory J. DeBor, Dr. Bob Elson, Steven Flammini, Dr. Mark Frisse, Dr. W. Edward Hammond, Dr. Max Henrion, Dr. Stanley M. Huff, Dr. Robert M. Kolodner, Ned McCulloch, John J. Pappas, Robert Pruim, Jeffrey W. Rose, Robert Seliger, Dr. Richard N. Spivack, John Stone, Dr. Milenko J. Tanasijevic, Dr. Paul C. Tang, Dr. Gregory C. Tassey, Johnny Walker, Julia S. Whelan, and Dr. William A. Yasnoff. We invite your feedback. Only you can judge how well this report meets your needs. We hope you will send your comments to us at [email protected]. v

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9 Executive Summary CITL As healthcare in the United States evolves, information technology is becoming an essential component of efforts to improve quality and contain costs. While individual organizations are making headway in digitizing administrative transactions and providing clinical information to their clinicians, electronic flow of information between organizations is nascent.this report examines the impact, both in qualitative and quantitative terms, of such Healthcare Information Exchange and Interoperability (HIEI). Drawing on an extensive review of a wide range of literature, interviews with clinicians and healthcare executives, and consultations with experts, the Center for Information Technology Leadership (CITL) synthesized existing evidence and built a software model to project the value of different levels of HIEI. It examined transactions between providers (hospitals and medical group practices) and other providers, and between providers and stakeholders with whom they most commonly exchange information: independent laboratories, radiology centers, pharmacies, payers, and public health departments. CITL identified potential sources of benefits and costs for each relationship and quantified the value where it could find sufficient evidence.with today s prevailing phone and mail communications (Level 1 HIEI) established as a baseline, the model projected the value of HIEI at three different levels of sophistication: Level 2 Level 3 Level 4 Machine-transportable data (standard fax) Machine-organizable data ( and electronic messaging) Machine-interpretable data (interoperable data exchange with standardized message formats and content) This summary presents brief descriptions of costs and both qualitative and quantitative benefits that support CITL s findings, outlines limitations of the analysis, and describes the conclusions derived from the study. Benefits of HIEI This section summarizes both the qualitative and quantitative benefits of HIEI.Where CITL could find sufficient evidence, it quantified benefits for a range of providers (small, medium, and large medical group practices, and small, medium, large, and jumbo hospitals) and for the nation. 1

10 Benefits of interoperability between outpatient providers and independent laboratories Both freestanding and hospital-based clinicians use external laboratories, and interoperability between these providers and laboratories will clearly improve clinical care. It will give clinicians better access to patients longitudinal test results, eliminate errors associated with verbally reporting results, optimize ordering patterns by making test cost information readily available to clinicians, and make testing more convenient for patients. At the time of this study, data exist that allow CITL to project two quantifiable sources of potential cost savings. First, it enables computer-assisted reduction of redundant tests. Second, it reduces delays and costs associated with today s paper-based ordering and reporting of results, leading to administrative savings for the remaining, non-redundant tests. From these savings alone, individual hospitals and group practices would save between $15,600 and $2.95 million annually, depending on their size. CITL s model projects that the U.S. would reap the following benefit each year: Level 2 Level 3 Level 4 $8.09 billion $18.8 billion $31.8 billion Benefits of interoperability between outpatient providers and radiology centers Most imaging procedures ordered by office-based clinicians, and some ordered by those in hospital-based ambulatory practices, are performed in external radiology centers. Connectivity between these providers and radiology centers improves ordering by giving radiologists access to relevant clinical information, thereby enabling them to recommend optimal testing and reduce errors of commission on the part of ordering physicians. It improves patient safety by alerting both the provider and the radiologist to test contraindications. It improves coordination of care for both providers and patients and helps prevent errors of omission by enabling automated reminders to both clinicians and patients when follow-up studies are indicated. And it helps the environment by reducing the use of chemicals and paper used in film processing. Provider-radiology connectivity also reduces redundant tests and saves time and costs associated with paper- and film-based processes. CITL projects that these improved efficiencies could save individual provider organizations between $15,300 and $2.09 million dollars each year, depending on their size. For the nation as a whole, these sources would lead to the following savings annually: Level 2 Level 3 Level 4 $8.34 billion $14.4 billion $26.2 billion 2 The Value of Healthcare Information Exchange and Interoperability

11 Benefits of interoperability between outpatient providers and pharmacies Outpatient provider-pharmacy interoperability will improve clinical care by enabling the formation of complete medication lists, thereby reducing duplicate therapy, drug interactions and other adverse drug events, and medication abuse. It could also generate automated refill alerts, give clinicians easy access to information about whether patients fill prescriptions, complete insurance forms required for some medications, and identify affected patients in the event of drug recalls or the discovery of new side effects. And for providers, payers, pharmacies, and pharmacy benefit managers, interoperability may improve formulary management and promote adherence to formulary guidelines. While these attributes of interoperability contain obvious clinical and financial benefits, CITL s quantitative analysis focuses only on the degree to which electronic prescribing saves phone time for clinicians and pharmacists. CITL s projected value based on these potential savings demonstrates that individual providers could save $19,200 to $382,000 annually, depending on their size. Each year, the nation would save Level 2 Level 3 Level 4 $2.19 billion $2.66 billion $2.71 billion These overall benefits are relatively modest. On the other hand, CITL believes the nation will reap far more significant savings from pharmacy-payer interoperability, which will enable better adherence to widely varying formulary requirements. Benefits of interoperability between providers and other providers Patients often see multiple clinicians, with their medical records scattered across several offices and hospitals. As a result, clinicians are missing information from other practices or institutions in about a quarter of ambulatory visits, forcing them, in the interest of timely and cost-effective care, to substitute educated guesses for objective information. Provider-provider connectivity reduces this fragmentation of care and improves quality. It also improves referral processes by giving clinicians the patient-specific information they need to effectively consult on a case. CITL could not find sufficient evidence to quantify the clinical impact of HIEI on these interactions. However, provider-provider connectivity also saves time associated with chart requests and referrals. Assuming providers request charts when they are missing information, potential annual savings from these sources could range from $46,700 to $3.15 million for individual provider organizations, depending on their size. For the nation as a whole, annual benefits from time saved managing such information requests would be Level 2 Level 3 Level 4 $2.92 billion $8.11 billion $13.2 billion Executive Summary 3

12 Benefits of interoperability between providers and public health departments The U.S. public health system is a network of local, state, and federal agencies that pursues a wide array of population health objectives.the most significant impact of public health interoperability will almost certainly derive from (a) earlier recognition of emerging disease outbreaks and (b) biosurveillance, as it becomes easier to identify warning signs and trends by aggregating data from many sources. Robust quantitative evidence about the value of HIEI in earlier recognition of disease and biosurveillance does not yet exist, and CITL did not project value from these sources. However, provider-public health connectivity also makes reporting of vital statistics and cases of certain diseases more efficient, potentially saving the nation the following amounts each year: Level 2 Level 3 Level 4 $63.2 million $107 million $195 million Benefits of interoperability between providers and payers Payers and providers exchange administrative data in order to document services delivered and to ensure that providers are reimbursed according to contracted rates. Currently, these transactions enjoy a relatively high degree of standardization, largely due to the Administrative Simplification provisions in the Health Insurance Portability and Accountability Act (HIPAA). HIPAA already mandates standards for electronic provider-payer interoperability (Level 4); non-standardized electronic transactions (Levels 2 and 3) are not legally permitted. Provider-payer connectivity makes the exchange of seven categories of administrative data (eligibility inquiry and response, claims submission, claims attachments, claims status inquiry, remittance advices, referrals and preauthorizations, and coordination of benefits) more efficient. Moving to full interoperability for all of these transactions potentially could save the nation the following each year: Level 2 Level 3 Level 4 Not applicable Not applicable $20.1 billion Costs of HIEI CITL projected HIEI costs for new internal clinical systems for providers, provider interfaces to stakeholders, and stakeholder interfaces to providers.the model calculated costs over a 10-year implementation period and annual maintenance costs following 4 The Value of Healthcare Information Exchange and Interoperability

13 implementation. Because Level 3 requires more interfaces, costs are higher for Level 3 than for Level 4. CITL did not attempt to estimate the cost of systems for laboratories, radiology centers, pharmacies, payers, or public health departments. At least some of these systems would require additional public and private sector investment to make them HIEI-capable. Net Value of HIEI For reasons described above, a complete projection of HIEI benefits and costs cannot yet be accomplished. Nevertheless, considering only those benefits and costs for which CITL can assign a dollar value, at three levels of full implementation, the United States will realize billions of dollars in net value: Implementation Steady State Cumulative Annual Years 1 10 Starting Year 11 Level 2 Level 3 Level 4 Benefit $141 billion $ 21.6 billion Cost $ 0.0 billion $ 0.0 billion Net Value $141 billion $ 21.6 billion Benefit $286 billion $ 44.0 billion Cost $320 billion $ 20.2 billion Net Value ($34.2 billion) $ 23.9 billion Benefit $613 billion $ 94.3 billion Cost $276 billion $ 16.5 billion Net Value $337 billion $ 77.8 billion Limitations of Analysis This analysis cannot be considered comprehensive. With little real-world experience with HIEI or its impact, quantitative evidence about its value is limited. The analysis incorporates the best evidence available, combining estimates from experts and a small number of studies in a mathematical model. It is a financial analysis; it does not impute a value to clinical or organizational improvements due to HIEI. It considers transactions between providers and five other healthcare stakeholders and ignores transactions Executive Summary 5

14 among many other participants that would be supported by HIEI. It assumes full costs for some transactions that are currently incomplete, such as provider-provider chart requests.though it includes estimates of the costs for providers to install HIEI-capable systems, it does not account for corresponding costs to laboratories, radiology centers, pharmacies, payers, and public health departments. Furthermore, it does not estimate the cost of developing the standards that will be essential for achieving Level 4 HIEI. Conclusions from Analysis National implementation of any of the three levels of HIEI will produce qualitative improvements in healthcare and important public health measures, along with positive financial returns for the nation. Systems that enable standardized information exchange, or Level 4 HIEI, are by far the best investment for the nation as a whole, with net savings that likely represent 5% of current U.S. healthcare expenditures. Standardized information exchange is also the best investment for hospitals and medical offices, as well as for independent laboratories, radiology centers, pharmacies, payers, and public health departments. The CITL analysis was unable to identify all the costs associated with implementing HIEI. Nevertheless, CITL estimates the value of standardized information exchange is even higher than these numbers suggest, since the model did not quantify the value of improved quality of care, improved clinical workflow, impact on public health or biosurveillance, and other important factors where quantitative evidence is insufficient to support projections. Non-standardized information exchange, or Level 3 HIEI, is not a good national strategy either for the long term or as an interim step toward standardized Level 4 HIEI. Investments in non-standardized information exchange lock in local solutions, divert resources from developing more universal approaches, delay conversion to national standards, and guarantee that additional costs will be incurred down the road to convert to national standards, once they exist. If the U.S. is to have cost-effective healthcare information exchange and interoperability, developing national standards is an absolute requirement. It is likely that national HIEI will grow from regional data sharing initiatives. If national standards can be set for them to adopt from the start, these networks may one day be knit together into a seamless national Level 4 healthcare information system. CITL estimates that Level 4 HIEI will improve the quality and safety of healthcare delivery and lower the nation s net healthcare expenditures.at a time of national tumult over quality, safety, and cost, achieving seamless interoperability among vital sectors of the delivery system is an opportunity that must be seized. 6 The Value of Healthcare Information Exchange and Interoperability

15 Chapter 1: Introduction CITL U.S. healthcare is undergoing a fundamental change in its approach to delivering care. Faced with rampant inefficiencies and quality failures, payers, providers, and patients alike have come to understand the critical role information technology (IT) plays in reducing costs and improving quality. IT that was once visionary, such as the electronic health record (EHR), is now a common topic in healthcare discussions. By now, most providers have investigated the potential impact of implementing an EHR or clinical decision support system whose value has been documented in clinical settings. 1,2,3 The adoption rate of EHR in outpatient settings is currently 20% to 25%, with a projected increase to 50% to 60% in the near future. 4 In inpatient settings, computerized provider order entry (CPOE) adoption estimates range from 3% to 21%, and planned future adoption from 27% to 67%. 3 The Need To date, IT has enabled progress towards optimizing the effectiveness and efficiency of healthcare delivery by individual providers in the context of individual organizations. But a critical piece of IT infrastructure that would enable providers and other healthcare stakeholders full access to the data they need to treat patients or perform basic administrative activities is missing. In our decentralized and fractured healthcare delivery system, patients often interact with providers in multiple settings (e.g., primary care office, specialist office, laboratory) that are rarely connected. According to Medicare data, patients see unique providers annually, with the average beneficiary seeing Therefore, a patient may have anywhere from one to a dozen or more medical records that largely do not interact with one another.vital data stored in these records cannot be easily accessed or integrated to present a clear and complete picture of the patient. A study in an outpatient clinic found that pertinent patient data were unavailable in 81% of cases, with an average of four missing items per case.the entire medical record was unavailable 5% of the time. 6 Another study estimated that 18% of medical errors that result in an adverse drug event in an inpatient setting are due to inadequate availability of patient information. 7 This situation requires providers to spend significant time tracking down and exchanging data, such as clinical notes and letters, test results, x-rays, and bills. Academic medical centers and other large delivery systems have started to address this problem through internal electronic exchange of clinical and administrative data. Most providers rely on phone, fax, or methods for this information transfer, none of which guarantees timely or reliable information exchange. Further, these channels require people to Chapter 1: Introduction 7

16 become communication portals, acting both as the source and transmitter of information among various healthcare providers.this is both a burden and an inherently errorprone method of sharing data. It is estimated that up to 90% of the 30 billion healthcare transactions in the U.S. every year are conducted via mail, fax, or phone, 8 resulting in avoidable medical error and higher costs. The need for interoperable healthcare information systems that share data electronically to support clinical and administrative transactions is clear. First Steps toward Interoperability Electronic information exchange and interoperability are the next steps in using IT to address quality failures and inefficiencies.this is not a new idea. Beginning in the 1980s, communities experimented with Community Health Information Networks (CHINs). 9 These efforts largely failed. But the advent of the Internet and development of improved data security methods and standards, combined with increasing cost and quality pressures, now make comprehensive healthcare information exchange an attainable vision. The Indianapolis Network for Patient Care, a citywide EHR system that started in 1995 with the goal of improving emergency room care, has since expanded into public health areas and is working toward an intranet system that will allow more than 2,000 physicians to communicate electronically at the city s five largest hospital systems. 10 The Santa Barbara County Care Data Exchange is investigating how a patient s clinical information can be readily accessible by any authorized person, including the patient. It seeks to determine whether regional health information exchange is feasible, sustainable, and can improve the quality of care. Interim findings on financial sustainability are positive. 11 Perhaps the most burdensome information exchange, between providers and payers, has received the greatest effort to date towards achieving interoperability. The Health Insurance Portability and Accountability Act (HIPAA) includes a federal mandate for provider-payer interoperability and offers a comprehensive set of standards for electronic communication of nine categories of administrative data. Sparked by the HIPAA mandate, the New England Healthcare EDI Network (NEHEN) began in 1998 to join the major provider and payer organizations in New England to implement electronic administrative health data exchange. The NEHEN Project has been very successful in electronically routing eligibility and referral data, but is not yet routing clinical information. 12 The National Health Information Infrastructure (NHII) initiative, formed within the Department of Health and Human Services in 2001, is an essential step towards realizing comprehensive interoperability on a national level. Over the next ten years, NHII seeks to promote a complete network of interoperable systems of clinical, public health, and personal health information The Value of Healthcare Information Exchange and Interoperability

17 Potential Power of Interoperability The potential benefit of improved electronic information exchange is wide-reaching. First, patient safety and clinical quality are improved, as systems bring medical record information to the point of care, integrate health information from multiple sources and providers, and integrate decision support tools with guidelines and research results. Second, patients can gain access to their own personal health information, which empowers them to better manage their health.third, the public health system benefits from improved reporting of communicable diseases and real time aggregation of data for biosurveillance and detection of emerging disease patterns. Fourth, aggregating electronic billing and payment data will facilitate better understanding of healthcare costs. Finally, significant potential financial benefit may accrue from decreasing human involvement in information exchange and reducing redundant procedures. Interoperability is powerful because it leverages current technologies, such as hospital information systems, pharmacy systems, EHR, and CPOE, to reduce costs and improve quality. By connecting existing payer and provider systems, for example, authorized users could have instant access to the administrative data they need. Well-recognized network effects may arise, with the value of a network and its data growing exponentially with the number of users. The full value of interoperability will be realized when every participant is connected, and information exchange occurs seamlessly among all stakeholders. Implementation Challenges Achieving a fully interoperable healthcare delivery system is a daunting task facing numerous barriers. All delivery systems, hospitals, and large and small physician offices must first be willing to participate and share data with organizations that could be considered competitors. Assuming participation, all organizations must adopt internal systems to automate their own clinical and administrative information management. Any system implementation is burdensome, tapping significant labor and funding resources. And many organizations may be wary of installing systems that could be incompatible with local or national information infrastructures. The need for provider and patient identifiers to support information exchange remains the subject of much debate. Moreover, once new systems are in place, additional risks may arise related to maintaining patient privacy. Providers may also be at risk for how they choose to use, or not use, information newly available from sources outside their own practices. Thorough review of all available data could seriously disrupt provider workflow, but failure to do so could put providers at risk for malpractice lawsuits. As the costs of limited information exchange are not well understood at this point, it is difficult to know how best to address these risks. As Chapter 1: Introduction 9

18 interoperability evolves, risk mitigation tactics must be addressed to ensure successful implementation. The critical issue for healthcare information exchange and interoperability is adoption of basic electronic communication standards that allow stakeholders to format, transmit, receive, and store data. In order for participants to manage and interpret data in meaningful ways, optimal interoperability requires adoption of controlled vocabularies, code/data sets, and other advanced communication standards. Multiple public and private sector groups have tackled some of these required standards, including HL7, Consolidated Healthcare Informatics (CHI), Connecting for Health, and a joint venture of Healthcare Information and Management Systems Society (HIMSS), Radiological Society of North America (RSNA), and the American College of Cardiology (ACC). However, for those attempting to make systems interoperable, multiple standards breed confusion. To be successful, technology requirements and standards, appropriate financial incentives, and other enabling policies must be tackled on a national level and implemented locally. This Report This CITL report on the value of healthcare information exchange and interoperability (HIEI) considers the financial benefit and cost of data exchange between providers and their principal business and care partners: other providers, payers, pharmacies, external laboratories and radiology centers, and public health departments. It addresses such questions as the following: Which information exchanges are likely to yield the most value for key healthcare stakeholders? What is the value of interoperability to the nation? What are the benefits? What are the costs? By providing a clear understanding of the HIEI value proposition, CITL hopes to help build a national vision of interoperability. The assessment begins with a definition of HIEI and a description of CITL s approach to the analysis (Chapter 2). This is followed by chapters presenting the benefit of HIEI for each transaction type (Chapters 3 8), the cost of implementing HIEI (Chapter 9), and the net value of HIEI (Chapter 10). Research limitations (Chapter 11) and conclusions (Chapter 12) complete the report. Illustrations, graphs, and summary tables are included in the text of each chapter as figures. More detailed supporting tables are located at the end of each chapter. 10 The Value of Healthcare Information Exchange and Interoperability

19 References 1. Kaushal R, Shojania KG, Bates DW: Effects of computerized physician order entry and clinical decision support systems on medication safety: a systematic review. Archives of Internal Medicine 163(12): , Jun. 23, Wang SJ, Middleton B, Prosser LA, Bardon CG, Spurr CD, Carchidi PJ, Kittler AF, Goldszer RC, Fairchild DG, Sussman AJ, Kuperman GJ, Bates DW: A cost-benefit analysis of electronic medical records in primary care. American Journal of Medicine 114(5): , Apr. 1, Barlow S, Johnson J, Steck J: The economic effect of implementing an EMR in an outpatient clinical setting. Journal of Healthcare Information Management 18(1) Winter Brailer DJ,Terasawa EL: Use and adoption of computer-based patient records in the United States: A review and update. California HealthCare Foundation Oct Berenson RA, Horvath J: The clinical characteristics of Medicare beneficiaries and implications for Medicare reform. Partnership for Solutions Mar Connecting for Health:The Steering Group. Connecting for Health Jun. 5, Connecting for Health, Menduno M: Apothecary. now, Hospitals and Health Networks, Jul. 1999, pp Gartenfeld E:The community health information network: A model for hospital and public library cooperation. Library Journal 103(17): , Hospitals to launch messaging system, patient database. ihealthbeat Dec. 9, Brailer D, Augustinos N, Evan L, Karp S: Moving toward electronic health information exchange: the interim report on the Santa Barbara County data exchange. California HealthCare Foundation Jul Glaser JP, DeBor G, Stuntz L: The New England healthcare EDI network. Journal of Healthcare Information Management 17(4):42 50, The National Health Information Infrastructure. Chapter 1: Introduction 11

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21 Chapter 2: Approach to Analysis CITL This chapter presents the basic framework underlying the analyses in this report. It describes CITL s taxonomy of healthcare information exchange and interoperability (HIEI) functionality, the scope of transactions considered, some basic assumptions and building blocks used throughout the analysis, and an overview of research methods. All amounts throughout are in 2003 dollars unless otherwise noted. HIEI Functionality HIEI is a conceptual framework describing how healthcare entities share information. CITL created a functional taxonomy based on three factors in data exchange: the amount of human involvement, the sophistication of IT, and the adoption of standards. The taxonomy has four levels (Figure 2-1). Level Attributes Healthcare Information Exchange and Interoperability Taxonomy 1 Non-electronic data transfer of information that is written down or shared verbally. Relies heavily on human facilitation to rapidly review large volumes of data on paper and manually convert and extract content. Figure 2-1 Examples: mail, phone 2 Machine-transportable data transfer of information via basic IT, such as fax and . Still requires significant human involvement. Technical: binary data such as faxed or scanned documents. Content is only indexed to the document level. Computers can store and retrieve the information but assist clinicians minimally in the management of information. Computerized logic cannot be applied to the data. Manual re-keying of content required. Examples: PC-based and manual fax, of pictures, portable document format (PDF) continued on next page Chapter 2: Approach to Analysis 13

22 Figure 2-1 Healthcare Information Exchange and Interoperability Taxonomy (continued) Level Attributes 3 Machine-organizable data IT largely replaces human involvement in data exchange but uniform standards are not used. Requires multiple, customized interfaces to exchange data between systems. Human involvement needed to translate incoming data from the sending organization s vocabulary to the receiving organization s vocabulary. Usually results in imperfect translations due to incompatible vocabularies. Technical: formatted data with field definitions and meta-data. Content is indexed down to the field level;however, the actual content of the field remains unregulated. Computers can organize, search, and filter the data based on fields and meta-data, but computerized logic cannot be used to fully process the information due to inconsistent content format. Secure transfer. Electronic content extraction with human conversion and interpretation of content. Examples: secure of free text or incompatible/proprietary file formats, HL7 message 4 Machine-interpretable data idealized state of full computer-to-computer, standardized data exchange without human involvement. All systems exchange data using the same messaging, format, and content standards, removing the need for multiple, customized interfaces. Technical: data encoded using accepted, controlled vocabularies. Full syntactic and semantic interoperability: content is not only indexed down to the data point level, but also consistently formatted and encoded. Secure transfer. Computerized logic can now be applied uniformly to offer full decision support capabilities. Fully electronic content extraction and conversion. No human intervention required for information transfer or interpretation. Example: automated entry of LOINC results from an external lab into a primary care provider s electronic health record (EHR) HIEI Levels 1 and 2 are the predominant models for communication today.this report focuses on the value of moving to interoperability at Levels 3 and 4 where IT plays a central role. Both Level 3 and Level 4 systems use standardized transportation or messaging protocols, such as TCP/IP and HL7. Level 4 is differentiated from Level 3 by the use of standard, controlled vocabularies that enable systems to understand incoming data, such as LOINC, SNOMED, DSM, ICD, and CPT codes. In the ideal state, Level 4 systems not only share vocabularies but also have the same underlying information model, thus achieving semantic interoperability. The lack of vocabulary or content standards at Level 3 results in structured interoperability, with perfect transport of unclear content. This creates work on the receiving end and can introduce error as incoming data are translated into the local vocabulary. 1 Error is introduced as a result of different levels of detail in coding systems that can be translated in multiple ways. Data exchange at Level 4 is therefore the most desirable because it requires the least human effort, thereby minimizing error. Taken together, a standardized information model describing data and information relationships, and a standardized controlled medical terminology describing allow- 14 The Value of Healthcare Information Exchange and Interoperability

23 able values and attributes of the information model, constitute a reference interoperability framework. There are multiple options for how interoperability could occur. In a peer-to-peer model, information is exchanged directly between entities. In a centralized model, all information travels to a central repository accessible to all users. Both of these models accomplish interoperability but they have different technical infrastructures. This report does not address the question of how interoperability is achieved from a technical architecture perspective. It considers solely what is needed for healthcare organizations to exchange data electronically: system interfaces and a reference interoperability framework. If the data are stored electronically on both ends of an exchange, an interface between the sending and receiving systems is all that is required, given the reference interoperability framework to facilitate data transformation as necessary.thus, this analysis ignores the technical infrastructure that determines how information is routed and focuses instead on interfaces that allow information to be exchanged at Levels 3 and 4. Scope of Analysis Information is exchanged by thousands of healthcare system participants, and national Level 4 interoperability would provide a complex communications web. To define a manageable valuation task, CITL created an analytic model that focuses on data sharing between providers (hospitals and clinician offices) and other providers, and between providers and five stakeholders with whom they most commonly exchange information: laboratories, pharmacies, radiology centers, public health departments, and payers. This model is provider-centric and data-focused. The majority of information exchanged between healthcare entities originates with providers, whose processes and outcomes are more likely to be studied and reported than transactions between stakeholder entities like payers and pharmacy benefit managers (PBMs). The analysis does not consider exchanges between stakeholders. The flow of transactions considered in this report is represented by the arrows in Figure 2-2. Chapter 2: Approach to Analysis 15

24 Figure 2-2 Overview of Provider-Stakeholder Relationships Public Health Other Providers Radiology Provider Pharmacy Primary (in scope) Payer Laboratory Secondary (out of scope) The model is encounter-centric, encompassing clinical and administrative data needed for transactions that directly relate to a clinical encounter, including eligibility verification, electronic health records and charting, order entry and results reporting, and claims submission, adjudication, and payment. The model quantifies the benefits and costs of HIEI between providers and stakeholders exchanging clinical and administrative data. It does not consider the value of HIEI within an enterprise. For example, the value of a test ordered electronically in a hospital and sent to the hospital s lab is not included. Model Building Blocks CITL built a model that represents how system and participant organization characteristics interact to generate value.it was created as an influence diagram using Analytica software from Lumina Decision Systems, Inc. 2 This software combines both qualitative and quantitative information and incorporates probability distributions in order to be explicit about uncertainties in research findings. Results in this report were projected by the software model. 16 The Value of Healthcare Information Exchange and Interoperability

25 This section describes some basic assumptions and starting points fundamental for understanding the model results presented in this report. Many calculation layers support the results, and the analytic approach and calculations behind the model s projections are described in some detail in each chapter. It is not possible, however, to present comprehensive information about all the analytic layers. Appendix 3 includes more information about analytic constructs not described in the text. No accounting for the current state CITL s goal was to quantify the financial value derived from HIEI through more efficient healthcare transaction processes. Today, health care operates at varying levels of HIEI. However, data are not available to capture accurately at what HIEI level each provider and stakeholder is exchanging data.to simplify, the model does not account for current state of affairs ; it quantifies the value of the entire system moving from Level 1 to Level 2, 3, or 4. Level 1 is the baseline.the exception to this assumption is provider-payer interoperability. Data are available on the current number of transactions between providers and payers that are performed electronically, and this real world baseline is incorporated into the analysis. Provider size categories The analysis projects annual benefit to hospitals and to provider group practices, as defined in Figure 2-3.Appendix 3 includes additional information about these provider size categories. Provider Group Small Group Medium Group Large Group Small Hospital Medium Hospital Large Hospital Jumbo Hospital Provider Size Categories Size 5 clinicians 10 clinicians 25 clinicians < 49 beds beds beds 400+beds Figure 2-3 Assuming full utilization with interoperability Due to the burden of Levels 1 and 2 communication, some information exchange simply does not happen today. For example, infectious disease cases are not fully reported to public health departments (described in Chapter 7).The HIEI analysis assumes that Levels 3 and 4 interoperability will eliminate these barriers to communication, and the model is based on full reporting. Specific instances are explained in the text. Chapter 2: Approach to Analysis 17

26 Upper bound of efficacy and HIEI impact The benefit over Level 1 that can be achieved at HIEI Levels 2, 3, and 4 is a product of two factors.the first factor is the proportion of transactions executed at that particular level. CITL assumes that at least 5% of transactions are always executed in less efficient ways (i.e., lower HIEI levels). This accounts for unanticipated costs, incomplete usage, and other effects that may diminish returns. The second factor is the impact of each HIEI level on the remaining 95% of transactions. CITL interprets the second factor as the frequency of savings at that HIEI level. For example, for lab transactions at Level 3, a source may report that cost savings occurs in two of three transactions (67%). CITL would combine the transaction proportion estimate (for example, 50%), to arrive at the efficacy number (34%) used in the model. Source of benefit CITL approached this financial analysis by considering separately the benefits and costs of each provider-stakeholder relationship. A large portion of benefit is reduced labor/administrative cost, in the form of saved time from work that no longer needs to be done manually once data are exchanged electronically. Throughout the report, this benefit is referred to as administrative savings and is translated directly into dollar savings. This benefit would accrue to all organizations participating in interoperability. Interoperability also leads to fewer redundant services, procedures, and tests performed. This benefit accrues to the payers and providers bearing financial risk. Sensitivity analyses CITL measured the sensitivity of its projections to changes in various model inputs. Each chapter reports the impact of increasing and decreasing these factors by 50%, while holding all other factors constant. Many model inputs that were estimated (by CITL or the Expert Panel, described below) are included. Systemic factors, such as the U.S. population, are excluded. Providers vs. clinicians vs. stakeholders Throughout this report, the term providers refers to hospitals (inpatient and clinics) and group practice offices. Clinicians refer to the professionals in those organizations who write orders and deliver patient care. Stakeholders are external laboratories and radiology centers, pharmacies, public health agencies, and payers. Format of reported results Results are rounded to three significant digits to reflect the heterogeneous nature of inputs, with varying levels of precision. As a result, sums in tables may appear to be incorrect. Unless otherwise noted, all amounts are in 2003 dollars. 18 The Value of Healthcare Information Exchange and Interoperability

27 Methods CITL employed a variety of methods literature reviews, expert interviews, Expert Panel estimates, and influence diagrams to gather and synthesize evidence included in this report. Generally, CITL depends on published sources for data. Where lacking, CITL calls on experts to fill critical gaps.we searched academic publications and a wide array of non-academic literature, including trade journals, government publications, general press, vendor and consultant studies, proprietary research services, and studies by foundations and professional associations. Because of the varying levels of precision in the estimates obtained from these heterogeneous data sources, all results presented in this report are limited to three significant digits. CITL convened an Expert Panel of nationally recognized experts to provide advice throughout the project: David J. Brailer, MD, PhD. Senior Fellow, Health Technology Center. Chairman and CEO, CareScience. Adjunct Professor of Health Care Systems, The Wharton School; Clinical Professor of Internal Medicine, University of Pennsylvania Health System; and Senior Fellow, Leonard Davis Institute of Health. William R. Braithwaite, MD, PhD, FACMI. Independent Consultant. Former Senior Advisor on Health Information Policy, Department of Health and Human Services. Paul C. Carpenter, MD, FACE. Associate Professor of Medicine, Divisions of Endocrinology-Metabolism and Health Informatics Research, Mayo Clinic, Rochester, MN. Daniel J. Friedman, PhD. Independent consultant. Robert H. Miller, PhD. Associate Professor of Health Economics in Residence, Institute for Health & Aging and Department of Social and Behavioral Sciences, University of California San Francisco. Arnold Milstein, MD, MPH. Medical Director, Pacific Business Group on Health. U.S. Health Care Thought Leader, Mercer Human Resource Consulting. J. Marc Overhage, MD, PhD, FACMI. Investigator, Regenstrief Institute for Health Care.Associate Professor of Medicine, Indiana University School of Medicine. Scott S.Young, MD, FAAFP. Senior Clinical Advisor, Office of Clinical Standards and Quality, Centers for Medicare and Medicaid Services. Kepa Zubeldia, MD. President and CEO, Claredi Corporation. On June 17, 2003, CITL staff facilitated a day-long roundtable discussion with the expert panel. During this session, experts assessed a draft analytic framework and debated CITL s preliminary findings. Each expert took multiple opportunities to comment on each topic. After the roundtable, the expert opinions and views were summa- Chapter 2: Approach to Analysis 19

28 rized; further discussions in the ensuing weeks led either to consensus or, in some cases, a compromise on several findings. CITL used knowledge obtained from this meeting to revise and refine the model, to refine HIEI levels, and to firm up research conclusions. CITL also interviewed more than 20 experts in addition to the panelists, including information system executives and directors of regional data-sharing initiatives. Appendices 1 and 2 present further information about methods, including a description of CITL s Healthcare IT Value Framework, the HIEI Expert Interview Guide, and a detailed description of the literature search strategy.appendix 4 contains expert panelist biographies. References 1. Middleton B:Testimonies before the Department of Health and Human Services, National Committee on Vital and Health Statistics, Subcommittee on Standards and Security, Work Group on Computer-Based Patient Records.Thursday, Oct. 14, Analytica version 3.0.0, Los Gatos, CA: Lumina Decision Systems, The Value of Healthcare Information Exchange and Interoperability

29 Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories CITL Both hospital-based and freestanding clinician offices use external reference laboratories. Nonhospital-based clinician offices typically perform simple tests onsite (for example, urine dipstick, finger-stick glucose, cholesterol, pregnancy), and send other tests to external labs. While nearly every hospital has its own laboratory, some esoteric tests are sent outside to regional reference laboratories or others specializing in these uncommon tests. Quest Diagnostics, one of the major independent laboratory chains, defines esoteric tests as tests that are performed less frequently than routine tests and require more sophisticated technology, equipment and materials, professional hands-on attention and more highly skilled professional and technical personnel. Because it is not costeffective for most clinical laboratories to perform the low volume of esoteric tests inhouse, they generally refer many esoteric tests to an esoteric clinical testing laboratory. Due to their complexity, esoteric tests are generally reimbursed at higher levels than routine tests. 1 This chapter focuses on tests ordered during outpatient visits to hospital clinics and freestanding clinician offices, and then sent to external labs. CITL was unable to find data to project benefit from inpatient testing, but the benefit is assumed to be small, as only a small proportion of inpatient tests are sent out. Connectivity between provider and external laboratory information systems enables providers to transmit orders to laboratories, and enables laboratories to transmit results back to providers (Figure 3-1). Overview of Provider-Laboratory Transactions Orders Figure 3-1 Providers Results Laboratories The model defines the levels of interoperability between providers and labs in Figure 3-2. Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 21

30 Figure 3-2 Provider-Laboratory HIEI Levels Level Attributes 1 Paper laboratory orders carried by patient or courier and results delivered by mail or reported verbally 2 Faxed laboratory orders and results 3 Free text electronic laboratory orders and results 4 Encoded, standardized electronic laboratory orders and results Laboratory Test Costs and Projected Benefits Provider-lab connectivity affords two sources of cost savings. First, it enables computerassisted reduction of redundant tests. Second, it reduces delays and costs associated with today s paper-based ordering and reporting of results, leading to administrative savings for the remaining nonredundant tests. In preliminary results from the Santa Barbara County Care Data Exchange, 20% of laboratory and radiology tests were ordered because the ordering clinician did not have access to prior test results. 2 In an earlier inpatient study, Bates found that 8.6% of ordered tests were redundant. 3 CITL averaged these two reports to arrive at an estimated redundancy rate of 14.3%.This estimate is consistent with studies by Tierney that report a 12% to 14% reduction in the number of tests ordered when cost is presented to the physician at the point of order.though this reduction cannot be fully attributed to redundancy, it and other data suggest that physicians tend to over-order tests. 4,5 The number of redundant tests that can be eliminated varies with the level of interoperability. CITL s Expert Panel estimates that 18.7% of redundancy would be eliminated at Level 2; 27.6% at Level 3; and 95.0% at Level 4. Combining these estimates with the 14.3% overall rate of redundancy results in up to 13.7% of lab tests being avoided (Figure 3-3). Figure 3-3 Impact of HIEI on Redundancy Level 1 Level 2 Level 3 Level 4 Proportion of lab tests avoided 0% 2.69% 3.97% 13.7% 22 The Value of Healthcare Information Exchange and Interoperability

31 Most laboratory transactions today use manual, paper-based laboratory order and result forms. To authorize tests, paper orders need to be mailed or carried by the patient to the laboratory. On completion of the test, the lab produces a paper report to mail back to the ordering clinician. If the clinician does not receive the paper result in a timely way, he may call the lab for a verbal report. Some clinicians and laboratories use fax to speed delivery, but the end result is still a paper order or report that requires manual processing and integration into the patient s chart. The laboratory may also call ordering clinicians to alert them to abnormal results. It is important to note that interoperability will never completely replace emergency systems involving phone calls and certainty that a message has reached the target recipient. The Expert Panel also estimated the administrative cost savings (Table 3 1) and impact (Figure 3 4) at each HIEI level. Administrative Savings with HIEI Level 1 Level 2 Level 3 Level 4 Provider Administrative cost avoided to send orders 0% 19.3% 52.6% 95.0% Administrative cost avoided to receive results 0% 17.9% 65.0% 95.0% Laboratory Administrative cost avoided to receive orders 0% 25.7% 50.4% 95.0% Administrative cost avoided to send results 0% 27.9% 62.9% 95.0% Figure 3-4 In addition to the administrative costs described above, analysis must consider the cost of actually performing the test.the analysis uses an average billed cost of $40, derived from several sources 6 and confirmed by the Expert Panel. Subtracting the lab s administrative cost ($20.40, which would be included in the billed cost) leaves a nonadministrative cost of $19.60 per test.thus, the total cost to labs and providers for performing and handling a lab test is $ Wang estimates annual outpatient laboratory expenses to be $86.52 per insured adult per year, 7 an estimate validated by CITL expert panelists. 8 At $40 per test, an average insured adult is tested 2.16 times per year. These numbers serve as the foundation for the national benefit projection. National Benefit Projection Reducing redundancy leads to annual savings of between $3 and $17 per person. Additional savings come from avoiding paper-based processes associated with the Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 23

32 remaining tests. Multiplying the number of tests per person by the projected administrative savings impacts above yields savings between $9 and $38 per test (Table 3-2). The total of the three sources of benefit (avoided redundancy + lab administrative savings + provider administrative savings) is $22 to $88 per person annually. Multiplying the savings per person by CITL s U.S. expenditure burden factor, explained in Appendix 3, scales the per person figures to a national level and projects benefit of $31.8 billion per year at Level 4, as shown in Figure 3-5. Figure 3-5 National Benefit Projection Laboratory and Provider (Annual) Level 1 Level 2 Level 3 Level 4 Billed Test Cost per Person per Year $86.52 Billed Cost per Test $40.00 Tests per Person 2.17 Tests Eliminated from 0% 2.7% 3.9% 13.7% Avoided Redundancy Number of Tests Eliminated per Person Redundant Spending $0 $3.42 $5.06 $17.41 Avoided per Person Remaining (nonredundant) Tests Provider Administrative Cost $0 $7.54 $23.41 $34.18 Avoided per Person Lab Administrative Cost $0 $11.40 $23.41 $36.22 Avoided per Person Total Saving per Person $0 $22.36 $51.88 $87.82 U.S. Population 281,421,906 U.S. Expenditure Burden 362,000,000 U.S. Benefit (annual) $0 $8,090,000,000 $18,800,000,000 $31,800,000,000 Of the $31.8 billion benefit at Level 4, $4.26 billion, or 13.7%, is from avoiding duplicative tests.this benefit accrues to the two parties who are at risk for payment of lab services: providers and payers. CITL estimates that 11.6% of outpatient provider revenue comes from capitated contracts (see Appendix 3), and providers are therefore at risk for 11.6% of services. Based on this outpatient capitation rate, providers would realize $494 million of the $4.26 billion, and payers would realize the balance of $3.76 billion.the analysis does 24 The Value of Healthcare Information Exchange and Interoperability

33 not model the impact of reduced tests on laboratories, though they would lose the $4.26 billion.the remaining $27.5 billion benefit (86.4%) would be realized as internal administrative cost savings to providers and labs from dealing with fewer tests and handling the remaining tests more efficiently. Of the $27.5 billion, benefits are roughly equal between providers and labs, $14.4 billion and $13.1 billion respectively.this results in total annual provider benefit from provider-lab interoperability of $14.9 billion at Level 4. This projection is heavily dependent on the number of tests ordered per person. CITL surveyed several sources to locate reliable estimates, and they ranged widely. As a lower bound, the National Ambulatory Medical Care Survey (NAMCS) reports the annual number of tests ordered in physician offices for six common tests (complete blood count, hematocrit/hemoglobin, Pap smear, urinalysis, cholesterol, and prostate-specific antigen) to be approximately 0.86 test/person-year. 9 However, other governmental sources report much higher estimates. Health Care Financing Administration (HCFA) data from 2000 suggest 5.38 tests/person-year from office visits, and tests/personyear when all labs (including hospital labs) are included. 10 Data from the 1996 Center for Disease Control s National Inventory of Clinical Lab Testing Services report 4.37 tests/person-year. 11 The range of estimates suggests that the one used in this analysis 2.16 tests/person-year is conservative. Provider Benefit Projection Using similar logic, the model projects annual benefit to providers. CITL interviewed industry experts to determine the typical proportion of routine versus esoteric tests in offices and hospital-based practices, and their respective outsourcing rates. Experts suggested that projections should assume 100% of tests ordered in freestanding offices are sent to external laboratories, with 95% routine, and 5% esoteric. In hospital-based practices, only 7.5% of tests are sent out, with 1.9% routine and 5.6% esoteric. CITL applied these rates to annual outpatient visit volumes and the average number of tests per visit 12 to project the annual volume of tests ordered and sent out per provider group and hospital (Table 3-3). At an average cost of $25 per routine test and $100 per esoteric test, 13 the total cost of redundant laboratory tests that are sent out ranges from $31,000 in a small hospital s clinics to nearly $643,000 per year in a large group practice (Table 3-4). Applying the Expert Panel estimates of potential savings, per-entity annual savings from avoiding redundant tests range from $36,400 to $517,000 at Level 4 (Table 3-5). Providers annual administrative costs associated with managing the same number of orders and results range from $51,300 to $3,010,000, the cost of just organizing paper forms (Table 3-6). Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 25

34 Per-entity annual benefit ranges from $49,100 to $2,880,000 at Level 4 (Table 3-7). In total, providers could attain annual benefit ranging from $78,600 in a small hospital s clinics to $2,950,000 in a large group at Level 4, as shown in Figure 3-6. Figure 3-6 Total Benefit per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $131,000 $367,000 $591,000 Medium Group $0 $260,000 $734,000 $1,180,000 Large Group $0 $651,000 $1,830,000 $2,950,000 Small Hospital $0 $15,600 $39,300 $78,600 Medium Hospital $0 $40,000 $101,000 $202,000 Large Hospital $0 $100,000 $253,000 $505,000 Jumbo Hospital $0 $221,000 $558,000 $1,120,000 In summary, provider-laboratory interoperability would reduce redundant tests and administrative costs, producing annual financial benefit of nearly $32 billion nationally at Level 4 and nearly $19 billion at Level 3.This benefit would accrue to providers and payers in bottom-line savings, and to providers and labs in reduced administrative requirements. Providers, labs and payers stand to benefit $14.9 billion, $13.2 billion, and $3.76 billion respectively on an annual basis at Level 4. Sensitivity Analysis To determine how sensitive the projected benefit is to changes in key variables, we selected factors central to the analysis that carried some degree of uncertainty. Each variable was increased and decreased by 50%, and the associated impact on benefit was calculated.the Level 4 annual lab benefit of $31.8 billion is most sensitive to the cost per lab test (Figure 3-7). 26 The Value of Healthcare Information Exchange and Interoperability

35 Sensitivity of Annual National Benefit to 50% Change in Key Variables Lab Test Cost Figure 3-7 Lab $/person-yr $12 $32 $62 in billions % Esoteric Tests (lab) Increasing the cost from $40 to $60 leads to an 87% increase in national benefit, from $31.8 billion to $59.3 billion. Decreasing the test cost to $20 reduces national benefit to $22.6 billion. National benefit is less sensitive to the proportion of esoteric tests. Decreasing the proportion from 20% to 10% adds only $6.36 billion to national benefit (Table 3-8). Other Potential Value from Outpatient Provider-Laboratory Interoperability Beyond the financial benefit quantified in this chapter, provider-lab interoperability would produce organizational and clinical benefits. Four areas merit discussion. First, interconnecting providers and labs allows access to a patient s history of ordered tests and results. Enhancing provider access to this information would reduce errors associated with clinicians lacking access to prior test results. Prior test results are important indicators of a patient s health history; without them, clinicians are undoubtedly less effective at treatment and diagnosis of their patients. A second area of error that would be reduced by interoperability is associated with verbal reporting of test results.the current, paper-based system often does not return results to providers as quickly as necessary. As a result, physicians or staff members call the laboratory to get results verbally.this process is inherently error-prone, as the multiple people involved may miscommunicate complicated results, leading to clinical error.though the potential value associated with eliminating this type of error is not documented in the literature, a parallel can be drawn to electronic versus phone-based prescribing, discussed in Chapter 5. Similar value can be expected in the laboratory setting. Value can also be derived from improving the ordering process. In the current system, providers request tests on paper forms. Due to limited space and fluctuating test costs, Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 27

36 forms rarely include test prices.tierney s study in a primary care setting demonstrated that clinicians who have access to test costs order fewer tests and choose less expensive tests, while avoiding potentially adverse outcomes. Physicians who received test cost information ordered 14% fewer tests per patient visit, and the charges for tests were 13% lower. 14 Though test cost could be communicated nonelectronically, it is uncommon.a fully interoperable system would allow providers easy access to up-to-date test prices, while allowing laboratories to change prices as often as necessary. Finally, an interoperable system has the potential to significantly improve the way patients use laboratories. Tests associated with a visit can be performed onsite by the office or hospital lab. However, a patient may need a test at a time that does not coincide with the visit. Instead of driving back to the office or hospital, a patient often goes to a local laboratory. Under the current system, the patient must track down the closest lab and then communicate his choice to the clinician. One can envision the benefit of a fully interoperable system between providers and labs. During the office visit, the clinician and patient together find a lab close to the patient s home or work, order the test, and schedule the appointment at a time convenient to the patient. The clinician knows when and where the test is being performed and communicates any additional instructions to ensure correct test execution, eliminating work for both the patient and the clinician.there is potential clinical benefit through helping patients use such a system correctly. The value of interoperability will increase when outsourcing of clinical support services, such as laboratories, becomes more common. According to Quest s 2002 annual report, many hospitals have recently sold their laboratories and entered into co-location arrangements with large laboratory service providers in an attempt to eliminate the costs of laboratory ownership and yet enjoy the convenience of an on-site laboratory. 15 Such independent labs would presumably operate their own proprietary systems, increasing the value of interoperability with hospital systems. 28 The Value of Healthcare Information Exchange and Interoperability

37 References 1. Quest Diagnostics: Annual Report Quest Diagnostics, Brailer D,Augustinos N, Evans L, Karp S: Moving Toward Electronic Health Information Exchange:The Interim Report on the Santa Barbara County Care Data Exchange. California HealthCare Foundation Jul Bates DW, Boyle DL, Rittenberg E, Kuperman GJ, Ma Luf N, Menkin V, Winkelman JW, Tanasijevic MJ: What proportion of common diagnostic tests appear redundant? Am J Med 104: , Tierney WM, Miller ME, Overhage JM, McDonald CJ: Physician inpatient order writing on microcomputer workstations: Effects on resource utilization. JAMA 269(3): , Tierney WM, Miller ME, McDonald CJ:The effect on test ordering of informing physicians of the charges for outpatient diagnostic tests. NEJM 322(21): , Johnston D, Pan E, Walker J, Bates DW, Middleton B: The Value of Computerized Provider Order Entry in Ambulatory Settings. The Center for Information Technology Leadership, Wang SJ, Middleton B, Prosser LA, Bardon CG, Spurr CD, Carchidi PJ, Kittler AF, Goldszer RC, Fairchild DG, Sussman AJ, Kuperman GJ, Bates DW: A cost-benefit analysis of electronic medical records in primary care. Am J Med 114(5): , Apr. 1, Johnston, Cherry DK, Burt CW,Woodwell DA: National Ambulatory Medical Care Survey: 2001 summary. Advance Data (337):1-44, Aug. 11, Wolman DM, Kalfoglou AL, LeRoy L: Medicare Laboratory Payment Policy: Now and in the Future. National Academy Press, Steindel SJ, Rauch WJ, Simon MK, Handsfield J: National Inventory of Clinical Laboratory Testing Services (NICLTS): Development and test distribution for Arch Pathol Lab Med 124(8): , Aug Tierney, CITL Expert Panel. 14. Tierney, Quest Diagnostics, Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 29

38 Table 3-1 Administrative Costs of Paper-Based Orders and Results Provider Administrative cost to send order $10.00 Administrative cost to receive result $9.25 Total administrative cost per test $19.25 Laboratory Administrative cost to receive order $12.50 Administrative cost to send result $7.90 Total administrative cost per test $20.40 Table 3-2 Administrative Savings per Laboratory Test Level 1 Level 2 Level 3 Level 4 Sending $10.00 $0 $1.93 $5.26 $9.50 Provider Receiving $9.25 $0 $1.65 $6.01 $8.79 Subtotal $0 $3.58 $11.27 $18.29 Receiving $12.50 $0 $3.21 $6.30 $11.88 Laboratory Sending $7.90 $0 $2.20 $4.97 $7.51 Subtotal $0 $5.42 $11.27 $19.38 Total $0 $9.00 $22.54 $37.67 Table 3-3 Test Order and Sent Out Volume per Group or Hospital-based Practice (Annual) Outpatient Tests Routine Esoteric Total Visits Ordered Tests Sent Out Tests Sent Out Sent Out Small Group 19,400 31,300 29,700 29,700 1,570 1,570 31,300 Medium Group 38,800 62,600 59,500 59,500 3,130 3,130 62,600 Large Group 96, , , ,000 7,820 7, ,000 Small Hospital 22,000 35,600 8, ,700 2,000 2,670 Medium Hospital 56,600 91,400 22,900 1,720 68,600 5,140 6,860 Large Hospital 142, ,000 57,100 4, ,000 12,900 17,100 Jumbo Hospital 312, , ,000 9, ,000 28,400 37, The Value of Healthcare Information Exchange and Interoperability

39 Cost of Redundancy in Sent Out Tests per Group or Hospital-based Practice (Annual) Table 3-4 Sent Out Test Volume Total Cost Redundant Small Group 31,300 $900,000 $129,000 Medium Group 62,600 $1,800,000 $257,000 Large Group 156,000 $4,500,000 $643,000 Small Hospital 2,670 $217,000 $31,000 Medium Hospital 6,860 $557,000 $80,000 Large Hospital 17,100 $1,390,000 $199,000 Jumbo Hospital 37,900 $3,080,000 $440,000 Benefit from Reduction in Redundant Tests per Group or Hospital-based Practice (Annual) Table 3-5 Level 1 Level 2 Level 3 Level 4 Small Group $0 $21,300 $28,300 $96,000 Medium Group $0 $42,700 $56,600 $192,000 Large Group $0 $107,000 $142,000 $480,000 Small Hospital $0 $6,210 $10,400 $36,400 Medium Hospital $0 $16,000 $26,800 $93,600 Large Hospital $0 $39,900 $67,000 $234,000 Jumbo Hospital $0 $88,100 $148,000 $517,000 Administrative Cost for Managing Laboratory Tests per Group or Hospital-based Practice at Level 1 (Annual) Table 3-6 Total Sent Provider Order Provider Result Provider Total Out Cost Cost Cost Small Group 31,300 $313,000 $289,000 $602,000 Medium Group 62,600 $626,000 $579,000 $1,200,000 Large Group 156,000 $1,560,000 $1,450,000 $3,010,000 Small Hospital 2,670 $26,700 $24,700 $51,300 Medium Hospital 6,860 $68,600 $63,400 $132,000 Large Hospital 17,100 $171,000 $159,000 $330,000 Jumbo Hospital 37,900 $379,000 $350,000 $729,000 Chapter 3: Benefit of Interoperability between Outpatient Providers and Laboratories 31

40 Table 3-7 Benefit from Reduction in Administrative Costs per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $127,000 $363,000 $576,000 Medium Group $0 $254,000 $725,000 $1,150,000 Large Group $0 $635,000 $1,810,000 $2,880,000 Small Hospital $0 $10,500 $30,900 $49,100 Medium Hospital $0 $27,100 $79,400 $126,000 Large Hospital $0 $67,700 $199,000 $316,000 Jumbo Hospital $0 $150,000 $438,000 $697,000 Table 3-8 Sensitivity Analysis Low High Low High Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Average lab test cost $22.6 $59.3 $9.18 $ % 87% Lab $ per person-yr $15.9 $47.7 $15.9 $ % 50% Percent of esoteric lab tests $27.5 $38.2 $4.33 $ % 20% in billions 32 The Value of Healthcare Information Exchange and Interoperability

41 Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers CITL Clinicians send patients to external radiology centers when their practice lacks equipment or capacity to handle imaging. In freestanding offices, external imaging is common since they rarely have radiology equipment on-site, due to space and cost restrictions. Even large hospitals with radiology units send a portion of tests to external centers, especially esoteric tests (e.g., functional MRI, PET scan) that require computer assistance and a large number of films; these tests are sent to centers that specialize in performing and interpreting them.this analysis focuses on tests that are ordered during outpatient visits (in both hospital clinics and physician offices), and are then sent to external centers.the analysis excludes external imaging ordered in inpatient settings; this accounts for only a small percentage of overall external imaging volume. Connectivity between provider and external radiology center information systems enables providers to transmit orders to radiology centers, and enables radiology centers to transmit results back to providers (Figure 4-1). Overview of Provider-Radiology Transactions Providers Orders Results (may include image) Radiology Centers Figure 4-1 The HIEI model defines the levels of order and result interoperability between providers and centers in Figure 4-2. Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 33

42 Figure 4-2 Provider-Radiology HIEI Levels for Orders and Results Level Attributes 1 Paper radiology orders carried by patients or by courier, and results delivered by mail or verbally reported 2 Faxed radiology orders and results 3 Free text electronic radiology orders and results 4 Encoded, standardized electronic radiology orders and results Often, radiology orders require a set of images to be returned to the ordering physician. The levels of interoperability related to film transmission are defined in Figure 4-3. Figure 4-3 Provider-Radiology HIEI Levels for Images Level Attributes 1 Film physically transported by mail or courier 2 Faxed low-resolution copy of the film 3 Consumer-grade, lossy compression (GIF, JPEG, etc.) copy of the image 4 Fully lossless encoded radiology images (uncompressed image file, TIFF, etc.) Faxed reports are included for completeness; in reality, most centers without Level 4 capabilities would probably deliver a Level 3 lossy compressed image rather than a fax copy. A lossy compression describes an image that takes up less storage space, but the process of compression results in loss of detail that could theoretically result in misinterpretation and error in diagnosis. Thus, a lossless image, though usually larger and requiring more storage space, provides full detail for more accurate readability. Radiology Test Costs and Projected Benefit From a national perspective, provider-radiology interoperability creates two sources of benefit. First, it enables a reduction in redundant tests. Second, it reduces delays and costs associated with today s paper and film-based processes, leading to administrative savings for the remaining nonredundant tests. 34 The Value of Healthcare Information Exchange and Interoperability

43 CITL applied the estimated redundancy rate of 14.3%, derived in Chapter 3, to radiology tests. 1, 2 The number of redundant tests that would be eliminated varies with the level of interoperability. CITL s Expert Panel estimated that 18.7% of redundancy would be eliminated at Level 2; 23.2% at Level 3; and 95.0% at Level 4. Combining these estimates with the 14.3% overall rate of redundancy results in avoiding up to 13.7% of radiology tests (Figure 4-4). Impact of HIEI on Redundancy Level 1 Level 2 Level 3 Level 4 Proportion of radiology tests avoided 0% 2.69% 3.34% 13.7% Figure 4-4 Most radiology transactions use manual, paper-based order and result/interpretation forms.the paper-based orders need to be mailed or carried by the patient to the radiology center in order to authorize the procedure. On completion of the test, the center produces a paper report to mail back to the ordering clinician. Additionally, the ordering clinician may want to see the original film. Though primary care providers would view few images, orthopedic specialists, for example, would view most films.the Expert Panel estimates that 24% and 30% of tests require transfer of an image between the radiology center and the provider, for provider groups and hospital-based practices respectively. If the clinician does not receive the paper result in a timely way, he or she may call the radiology center for a verbal report. Some clinicians and radiology centers use fax to speed delivery, but the end result is still a paper order or result that requires manual processing and integration into the patient s chart. Radiologists may also call ordering clinicians to alert them to unexpected or unusual results. It is important to note that interoperability will never completely replace emergency systems involving phone calls and certainty that a message has reached the target recipient. Tests requiring film incur additional administrative costs, an area where routine tests and esoteric tests differ significantly. Whereas a simple routine chest x-ray needs only two sheets of film, a complex esoteric test such as a chest computerized tomography (chest CT) with and without contrast with different windows may use up to 20 sheets of film, with an associated increase in cost. Expert Panelists estimated providers administrative cost per test to be $19.25 plus $50 for handling film, and radiology centers cost to be $22.50 plus $15 to $ for handling film (Table 4-1). The Expert Panel also estimated the administrative savings impact at each HIEI level, as shown in Figure 4-5. Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 35

44 Figure 4-5 Administrative Savings at Each HIEI Level Level 1 Level 2 Level 3 Level 4 Provider Administrative cost avoided to send orders 0% 19.3% 52.6% 95.0% Administrative cost avoided to receive results 0% 17.9% 65.0% 95.0% Administrative cost avoided to receive film 0% 48.6% 72.6% 95.0% Radiology Administrative cost avoided to receive orders 0% 25.7% 50.4% 95.0% Administrative cost avoided to send results 0% 27.9% 62.9% 95.0% Administrative cost avoided to send film 0% 54.0% 73.9% 95.0% In addition to the administrative costs described above, the analysis must consider the expense of performing the test. The Expert Panel estimated an average billed cost for routine and esoteric tests of $240, which includes both the administrative and the actual test cost to the radiology center.adding the provider administrative cost of $25.27 (calculated by adding $19.25 and $50 in the 27% of the tests that require film) results in a total cost of $265 per test.this is the total cost to radiology centers and providers for performing and handling a test. Based on billed cost of $185 per insured adult per year 3 and the average billed cost per test of $240, the average insured adult has radiology tests per year and a total radiology cost of $204.These numbers serve as the foundation for the national benefit projection. National Benefit Projection Reducing redundancy saves between $5 and $29 per person annually (Figure 4-6). Additional benefit is derived from avoiding paper and film-based processes associated with the remaining tests (Table 4-2). The total of the three sources of benefit (avoided redundancy + radiology administrative savings + provider administrative savings) is $23 to $72 in savings per person annually. The HIEI model scales savings per person to national benefit by multiplying by CITL s U.S. expenditure burden factor. CITL projects that Level 4 provider-radiology interoperability would save the nation more than $26 billion per year (Figure 4-6). 36 The Value of Healthcare Information Exchange and Interoperability

45 National Benefit Projection Radiology and Provider (Annual) Level 1 Level 2 Level 3 Level 4 Billed Radiology Cost per Person Per Year $ Billed Cost per Test $ Tests per Insured Adult Tests Requiring Film Tests Eliminated from 0% 2.7% 3.3% 13.7% Avoided Redundancy Number of Tests Eliminated per Person Redundant Spending $0 $5.65 $6.98 $28.57 Avoided per Person Remaining (nonredundant) Tests Remaining Tests with Film Routine Esoteric Provider Administrative Cost $0 $7.62 $15.72 $20.75 Avoided per Person Lab Administrative Cost $0 $9.76 $16.53 $22.46 Avoided per Person Total Saving per Person $0 $23.03 $39.23 $71.77 U.S. Population 281,421,906 U.S. Expenditure Burden 362,000,000 U.S. Benefit (annual) $0 $8,340,000,000 $14,400,000,000 $26,200,000,000 Figure 4-6 Of the $26.2 billion benefit at Level 4, $9.10 billion, or 35%, is from avoided tests.this benefit accrues to the two groups at-risk for payment of radiology services: providers and payers. Based on the provider capitation rate discussed in the Laboratory chapter, providers would realize 11.6%, or $1.06 billion, and payers would realize the balance of $8.04 billion.the model does not include the impact of reduced tests on radiology centers; they would lose the $9.10 billion.the remaining $17.1 billion benefit (65%) is realized as internal administrative savings to the provider and the imaging center, from dealing with fewer tests, and from handling the remaining tests more efficiently. Of the $17.1 billion, benefits are roughly equal between providers and imaging centers, $8.85 billion and $8.22 billion respectively. This results in total annual provider benefit from provider-radiology interoperability of $9.91 billion at Level 4. Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 37

46 This projection is heavily dependent on the number of tests ordered per person per year, and CITL surveyed several sources for reliable estimates. A 1990 article from the Journal of Roentgenology estimates 260 million to 330 million radiologic procedures were performed in the U.S. in 1990 (including diagnostic and therapeutic procedures, and radiologic procedures performed by nonradiologists), or 1.05 to 1.33 tests per person. 4 More recent data cited by the head of the radiology department at Wake Forest showed that U.S. radiologists performed approximately 300 million procedures in 2000, or 1.09 tests per person. 5 Finally, NAMCS data from 2001 reports 204,557,000 imaging procedures associated with ambulatory care visits, or approximately tests per person. 6 The NAMCS data include five categories of imaging: any imaging, x-ray, ultrasound, mammography, and other. The estimate used in this analysis, 0.771, falls in the middle of this narrow range. Provider Benefit Projection Using similar logic, the HIEI analysis projects annual benefit to providers. CITL interviewed industry experts to determine the typical proportion of routine versus esoteric imaging procedures in offices and hospital clinics, and their respective outsourcing rates. Experts suggested that projections should assume that 100% of radiology tests ordered in freestanding offices are performed externally, with 77.5% routine, and 22.5% esoteric. In hospital-based practices, only 8.9% of radiology procedures are performed externally, with 1.4% routine, and 7.5% esoteric. CITL applied these rates to annual outpatient visit volumes and the average number of tests per visit 7 to project the annual volume of tests ordered and sent out per provider group and hospital (Tables 4-3 and 4-4). Using the Expert Panel s estimates of $125 per routine test and $625 per esoteric test, the total annual cost of redundant tests sent out ranges from $47,500 in a small hospital s clinics, to $1,560,000 in a jumbo hospital s clinics (Table 4-5). Applying the Expert Panel impact estimates, annual benefit from reducing the number of redundant tests range from $4,820 to $347,000 at Level 4 (Table 4-6). Providers annual administrative costs associated with managing the same number of orders and results range from $22,600 to $1,380,000 just for organizing these paper forms and film (Table 4-7). Annual administrative savings range from $21,600 to $1,320,000 at Level 4 (Table 4-8). In total, providers could attain annual benefit ranging from $66,700 in a small hospital, to $2,090,000 in a jumbo hospital at Level 4 (Figure 4-7). 38 The Value of Healthcare Information Exchange and Interoperability

47 Total Benefit per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $94,600 $191,000 $298,000 Medium Group $0 $189,000 $383,000 $595,000 Large Group $0 $480,000 $948,000 $1,490,000 Small Hospital $0 $15,300 $24,200 $66,700 Medium Hospital $0 $39,300 $62,400 $172,000 Large Hospital $0 $151,000 $236,000 $664,000 Jumbo Hospital $0 $468,000 $721,000 $2,090,000 Figure 4-7 In conclusion, provider-radiology interoperability would result in fewer redundant tests and lower administrative costs, producing annual financial benefit of over $26 billion nationally at Level 4 and more than $14 billion at Level 3.This benefit would accrue to providers and payers in bottom-line savings, and to providers and external imaging centers in reduced administrative requirements. Providers, imaging centers and payers stand to benefit $9.91 billion, $8.22 billion, and $8.04 billion respectively on an annual basis at Level 4. Sensitivity Analysis CITL varied the average cost per radiology test, the radiology spending per person per year, the proportion of esoteric tests, the proportion of tests that are redundant, and the proportion of tests that require film to determine the sensitivity of the benefit projection to each variable.the Level 4 annual radiology benefit of $26.2 billion is most sensitive to the cost per radiology test (Figure 4-8). Increasing the cost from $240 to $360 leads to a 65% increase in benefit, to $42.9 billion. Decreasing the test cost to $120 results in a 22% benefit decrease to $20.3 billion. Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 39

48 Figure 4-8 Sensitivity of Annual National Benefit to 50% Change in Key Factors Rad Test Cost Rad $/person-yr Percent of Esoteric Tests (Rad) Percent of Redundant Tests Percent of Tests with Film $11 $26 $46 in billions The proportion of esoteric tests has a smaller impact; reducing it from 25% to 12.5% results in an additional $4.6 billion in benefit (Table 4-9). Other Potential Value from Provider-Radiology Interoperability Additional sources of value from provider-radiology interoperability are likely to be realized, but were not quantified in this chapter. From an environmental perspective, interoperability reduces the need for film and film processing. Decreased use of chemicals and paper produces tangible savings to a radiology center and intangible benefits to the environment. From a clinical perspective, easy information access is likely to improve the quality of radiology services. Requisitions for imaging studies may not include adequate diagnostic and/or indication information, even with the rise of CPOE. 8, 9 Given access to the clinical history and previous imaging results, a radiologist can change the way a test is performed, make sure the most appropriate images are captured, and report the most clinically relevant interpretation and differential diagnosis. The radiologist may also recommend a better test, or recommend that no test be performed, saving the patient time, multiple tests, and radiation exposure. The radiologist may also recommend follow-up tests, thus reducing errors of omission. Electronic review of patient specific information would improve patient safety by alerting both the ordering provider and the radiologist to test contraindications or special considerations due to allergies, comorbidities, or recent laboratory results. Even without electronic clinical decision support, interoperability provides the imaging center with access to this information in the medical record, and radiologists can look for the 40 The Value of Healthcare Information Exchange and Interoperability

49 pertinent data. These cross checks are common in hospital-based settings, but without interoperability, they are difficult in other outpatient settings. Finally, interoperability between providers and imaging centers improves workflow and coordination. Many imaging studies need to be scheduled as they require specialized equipment and/or require patient preparation. Online scheduling enables provider organizations to schedule tests while the patient is in the office, avoiding follow-up calls, ensuring timely completion of the test and optimal use of time and equipment, and maximizing patient convenience. Digital imaging is very IT-intensive, requiring significant storage space and bandwidth. Providers and imaging centers currently make only the most recent test results available online, storing older images on CDs, WORMs, or other media that require human intervention to retrieve. Full interoperability makes all images available, a scenario the U.S. may approach as more entities adopt DICOM systems and storage and bandwidth become less expensive. Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 41

50 References 1. Brailer D,Augustinos N, Evans L, Karp S: Moving Toward Electronic Health Information Exchange:The Interim Report on the Santa Barbara County Data Exchange. California HealthCare Foundation Jul Bates DW, Boyle DL, Rittenberg E, Kuperman GJ, Ma Luf N, Menkin V, Winkelman JW, Tanasijevic MJ: What proportion of common diagnostic tests appear redundant? Am J Med 104: , Johnston D, Pan E, Walker J, Middleton B, Bates D: The Value of Ambulatory Computerized Provider Order Entry Systems. The Center for Information Technology Leadership, Sunshine JH, Mabry MR, Bansal S: The volume and cost of radiologic services in the United States in American Journal of Roentgenology 157(3): , Sep Maynard CD: Radiology: future challenges. Radiology 219(2): , May Cherry DK, Burt CW,Woodwell DA: National Ambulatory Medical Care Survey: 2001 summary. Advance Data (337):1 44, Aug Tierney WM, Miller ME, McDonald CJ:The effect on test ordering of informing physicians of the charges for outpatient diagnostic tests. NEJM 322(21): , Markert DJ, Haney PJ, Allman RM: Effect of computerized requisition of radiology examinations on the transmission of clinical information. Academic Radiology (2): , Feb. 4, Gunderman RB, Phillips MD, Cohen MD: Improving clinical histories on radiology requisitions. Academic Radiology 8: , The Value of Healthcare Information Exchange and Interoperability

51 Costs of Routine vs. Esoteric Tests Provider Administrative cost to send order $ Administrative cost to receive result $ 9.25 Total administrative cost per test $ Administrative cost for film routine $ Administrative cost for film esoteric $ Table 4-1 Radiology Center Administrative cost to receive order $ Administrative cost to send result $ Total administrative cost per test $ Administrative cost for film routine $ Administrative cost for film esoteric $ Administrative Savings per Radiology Test Level 1 Level 2 Level 3 Level 4 Provider Sending $10.00 $0 $1.93 $5.26 $9.50 Receiving $9.25 $0 $1.65 $6.01 $8.79 Subtotal $0 $3.58 $11.27 $18.29 Receiving $50.00 $0 $24.29 $36.29 $47.50 Radiology Receiving $12.50 $0 $3.21 $6.30 $11.88 Sending $10.00 $0 $2.79 $6.29 $9.50 Subtotal $0 $6.00 $12.59 $21.38 Sending Routine $15.00 $0 $8.10 $11.08 $14.25 Sending Esoteric $ $0 $79.65 $ $ Table 4-2 Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 43

52 Table 4-3 Radiology Test Order and External Imaging Volume per Group or Hospital-based Practice (Annual) Outpatient Tests Routine Esoteric Total Visits Ordered Tests Sent Out Tests Sent Out Sent Out Small Group 19,400 8,870 6,880 6,880 2,000 2,000 8,870 Medium Group 38,800 17,800 13,800 13,800 3,990 3,990 17,800 Large Group 96,900 44,400 34,400 34,400 9,980 9,980 44,400 Small Hospital 22,000 10,100 5, , Medium Hospital 56,600 25,900 13, ,000 1,300 1,690 Large Hospital 142,000 64,800 22, ,100 5,270 6,170 Jumbo Hospital 312, ,000 28,600 1, ,000 17,200 18,600 Table 4-4 Portion of Radiology Tests Ordered and Sent Out Routine Esoteric Total Tests Sent Out Tests Sent Out Sent Out Small Group 77.5% 77.5% 22.5% 22.5% 100.0% Medium Group 77.5% 77.5% 22.5% 22.5% 100.0% Large Group 77.5% 77.5% 22.5% 22.5% 100.0% Small Hospital 50.0% 1.5% 50.0% 5.0% 6.5% Medium Hospital 50.0% 1.5% 50.0% 5.0% 6.5% Large Hospital 35.0% 1.4% 65.0% 8.1% 9.5% Jumbo Hospital 20.0% 1.0% 80.0% 12.0% 13.0% 44 The Value of Healthcare Information Exchange and Interoperability

53 Cost of Redundancy in External Imaging per Group or Hospital-based Practice (Annual) Table 4-5 Routine Esoteric Redundant Sent Out Cost Sent Out Cost Total Cost Cost Small Group 6,880 $774,000 2,000 $1,250,000 $2,020,000 $289,000 Medium Group 13,800 $1,550,000 3,990 $2,500,000 $4,040,000 $578,000 Large Group 34,400 $3,870,000 9,980 $6,240,000 $10,100,000 $1,450,000 Small Hospital 151 $17, $315,000 $332,000 $47,500 Medium Hospital 389 $43,800 1,300 $810,000 $854,000 $122,000 Large Hospital 907 $102,000 5,270 $3,290,000 $3,390,000 $485,000 Jumbo Hospital 1,430 $161,000 17,200 $10,700,000 $10,900,000 $1,560,000 Benefit from Reduction in Redundant Tests per Group or Hospital-based Practice (Annual) Table 4-6 Level 1 Level 2 Level 3 Level 4 Small Group $0 $15,400 $19,800 $69,500 Medium Group $0 $30,900 $39,600 $139,000 Large Group $0 $77,100 $99,100 $347,000 Small Hospital $0 $8,320 $9,790 $4,820 Medium Hospital $0 $21,400 $25,200 $124,000 Large Hospital $0 $84,600 $99,500 $490,000 Jumbo Hospital $0 $271,000 $318,000 $157,000 Chapter 4: Benefit of Interoperability between Outpatient Providers and Radiology Centers 45

54 Table 4-7 Administrative Cost for Managing Radiology Tests per Group or Hospital-based Practice at Level 1 (Annual) Total Provider Provider Tests Sent Out that Provider Provider Sent Out Order Cost Result Cost Require Films Film Cost Total Cost Small Group 8,870 $88,700 $82, % 2,120 $106,000 $277,000 Medium Group 17,800 $178,000 $164, % 4,240 $212,000 $554,000 Large Group 44,400 $444,000 $410, % 10,600 $530,000 $1,380,000 Small Hospital 655 $6,550 $6, % 199 $9,930 $22,600 Medium Hospital 1,690 $16,900 $15, % 511 $25,500 $58,000 Large Hospital 6,170 $61,700 $57, % 1,870 $93,500 $212,000 Jumbo Hospital 18,600 $186,000 $172, % 5,640 $282,000 $640,000 Table 4-8 Benefit from Reduction in Administrative Costs per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $89,200 $181,000 $265,000 Medium Group $0 $178,000 $362,000 $530,000 Large Group $0 $446,000 $904,000 $1,320,000 Small Hospital $0 $7,540 $14,800 $21,600 Medium Hospital $0 $19,400 $38,100 $55,500 Large Hospital $0 $71,000 $140,000 $203,000 Jumbo Hospital $0 $214,000 $421,000 $612,000 Table 4-9 Sensitivity Analysis High Low High Low Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Average radiology test cost $20.3 $42.9 $5.65 $ % 65% Radiology $ per person-yr $13.0 $39.0 $13.0 $ % 50% Percent of esoteric rad tests $23.3 $30.6 $2.68 $ % 18% Percent of tests requiring film $22.7 $29.3 $3.32 $ % 13% Percent of redundant studies $22.1 $29.9 $3.90 $ % 15% in billions 46 The Value of Healthcare Information Exchange and Interoperability

55 Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies CITL Improving the interoperability of prescribing and pharmacy systems between provider organizations and external pharmacies has the potential to make dramatic improvements in medication prescribing and use in the United States. In 2001, the U.S. spent more than $150 billion on prescription medications. 1 Rising prescription drug costs accounted for more than one-quarter of national healthcare spending increases, and increased at twice the overall cost inflation rate for Medicare. 2 In 1999, clinicians prescribed 146 drugs for every 100 office visits, up from 109 drugs per 100 office visits in In addition, patients received at least one prescription and/or a free drug sample in 66% of office visits in 1999, and doctors were more likely than in the past to prescribe more than one drug per patient. 4 The Centers for Medicare and Medicaid Services (CMS) estimates that drug expenditures will rise an average of 11.7% per year between 2003 and 2007, and an average of 10.3% per year from 2008 to If these growth rates materialize, prescription drugs will represent nearly 15% of total national health spending by Because of the significant role medications play in healthcare, many public and private efforts have evaluated how information technology can optimize the medication management process. Though interoperability is unlikely to have any direct effect on rising drug costs, it does have the potential to improve administrative processes, clinical results, and patient safety (e.g., rate of prescribing error) associated with medication management. CITL s HIEI model projects the administrative cost savings from interoperability. Value of Sending Prescriptions Many organizations are building systems to electronically connect clinicians and pharmacies (Figure 5-1). Overview of Provider-Pharmacy Transactions Figure 5-1 Providers Prescriptions Pharmacies Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies 47

56 These organizations include both large integrated delivery networks such as Partners HealthCare System, and business entities seeking to provide pharmacy transaction services, such as RxHub and SureScripts.The proposed functionality of these systems typically includes capabilities for clinicians to issue electronic prescriptions directly to external pharmacies. The primary benefits of using such prescription order entry systems are reduced medication error and reduced workload for clinicians and pharmacists. CITL defines the levels of provider-pharmacy interoperability in Figure 5-2. Figure 5-2 Provider-Pharmacy HIEI Levels Level Attributes 1 Paper prescriptions carried by patient or courier, prescriptions called in by clinicians 2 Faxed prescriptions 3 Free-text electronic prescriptions 4 Encoded, standardized electronic prescriptions The clinical case for computer-based prescribing systems is clear. Numerous studies, summarized in CITL s report on Ambulatory Computerized Provider Order Entry (ACPOE) systems, have shown that handwritten prescriptions are prone to misinterpretation and often result in preventable harm to patients. 6 Groups such as the Institute for Safe Medication Practices (ISMP) have already called for the elimination of handwritten prescriptions. 7 Figure 5-3 from ISMP s Call to Action illustrates the many stages in the medication management process where error can be introduced.while Level 4 interoperability would not eliminate all error, it could dramatically reduce errors that occur in the writing/order stage, the routing stage, the entering stage, and even some errors at the dispensing stage. In comparison, Level 2 and 3 systems would prevent fewer errors, since prescriptions still require interpretation or some re-keying, which introduce error and decrease the efficacy of computerized decision support systems. 48 The Value of Healthcare Information Exchange and Interoperability

57 The Medication Management System (From Institute for Safe Medication Practices. A Call to Action: Eliminate Handwritten Prescriptions Within 3 Years Electronic Prescribing Can Reduce Medication Errors. Institute for Safe Medication Practices Used by permission.) Figure 5-3 Electronic prescribing systems also produce quantifiable financial returns. Physicians employing manual, paper- or phone-based prescribing are described by RxHub as being much as they were 50 years ago. 8 This process continues to be costly and inef- Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies 49

58 ficient to providers, pharmacists, and the entire healthcare system. Both providers and pharmacists spend significant time dealing with ordering and checking prescriptions. A 2002 study in an ambulatory setting revealed that each written prescription refill took an average of 15 minutes of nursing and front desk staff time, or longer if the pharmacy did not have a recording line. 9 Early results from e-prescribing systems are promising. A 21-physician practice in Louisville that uses medical assistants (MAs) to do e-prescribing achieved an annual ROI of 0.4 FTE in MA time, plus $2,800 per doctor, due to physician time saved in handling issues raised by the MAs. In the first six months, the practice experienced 10% fewer callbacks from pharmacists and 36% fewer timeconsuming incoming calls from pharmacies because MAs handled so many refill requests electronically. 10 The Workgroup for Electronic Data Interchange (WEDI) estimates that clinicians phone in 50% of prescriptions, and that each prescription takes about two minutes. 11 More than 10% of handwritten prescriptions are illegible to pharmacists and require a follow-up phone call to the prescribing clinician for clarification. 12 About 1.4% of freetext electronic prescriptions require clarification. 12 Level 1 and 2 prescriptions require pharmacists to re-key the prescriptions into the pharmacy computer system for interaction checking and administrative requirements, a task that takes at least one minute per prescription. 13 All the time required to manually process prescriptions translates to lost dollars for both providers and pharmacies. National Benefit Projection CITL used the WEDI estimates to project time savings at each HIEI level. The HIEI model combined the projected number of prescriptions (Table 5-1), and Expert Panel estimates of HIEI impact on the proportion requiring phone calls (Figure 5-4) to calculate annual outpatient prescription call volume and prescription-related phone time and cost (Tables 5-2, 5-3, and 5-4). Eliminating almost all phone time at Level 4 would save over $2.7 billion annually (Figure 5-5). Figure 5-4 Impact of HIEI on Outpatient Prescriptions Requiring Phone Calls Level 1 Level 2 Level 3 Level 4 Reduction in prescriptions requiring phone calls 0% 77% 93% 95% 50 The Value of Healthcare Information Exchange and Interoperability

59 National Administrative Benefit Projection Pharmacy and Provider (Annual) Level 1 Level 2 Level 3 Level 4 Number of Outpatient Prescriptions per Year 1,240,000,000 Percent Requiring a Phone Call 55.3% 10.5% 1.40% 0.001% Clinician Minutes per Call 2 Clinician Labor Cost $91,000 per year (salary + 30% benefit) Hourly Clinician Labor Cost $45.50 National Clinician Hours Required 22,800,000 4,340, , National Clinician Labor Cost $1,040,000,000 $197,000,000 $26,300,000 $18,800 Pharmacist Minutes per Call Pharmacist Labor Cost $97,500 per year (salary + 30% benefit) Hourly Pharmacist Labor Cost $48.75 National Pharmacist Hours Required 34,300,000 6,510, , National Pharmacist Labor Cost $1,670,000,000 $317,000,000 $28,200,000 $20,200 Total National Hours Required 57,100,000 10,900,000 1,160, Total National Labor Cost $2,710,000 $515,000,000 $54,500,000 $39,000 Total National Benefit $0 $2,190,000,000 $2,660,000,000 $2,710,000,000 Figure 5-5 This benefit is realized as administrative cost savings to providers and pharmacies, from dealing with prescriptions more efficiently. Simply getting clinicians and pharmacists off the phone produces immediate savings, even if they only move as far as faxing prescriptions (Level 2), although electronic transmission (Levels 3 and 4) provides additional benefit. Provider Benefit The model followed the same steps to calculate provider benefit, shown in Figure 5-6. As would be expected, the larger institutions experience higher costs and do not benefit from economies of scale, since a significant portion of their ambulatory prescriptions are dispensed by internal pharmacies and do not require communication with external pharmacies.a large group practice would realize $119,000 in annual benefit at Level 4, while clinics in a jumbo hospital would realize $382,000 (Figure 5-6). Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies 51

60 Figure 5-6 Administrative Benefit per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $19,200 $23,100 $23,700 Medium Group $0 $38,400 $46,200 $47,400 Large Group $0 $96,000 $116,000 $119,000 Small Hospital $0 $21,800 $26,300 $26,900 Medium Hospital $0 $56,100 $67,500 $69,300 Large Hospital $0 $140,000 $169,000 $173,000 Jumbo Hospital $0 $310,000 $373,000 $382,000 In summary, provider-pharmacy interoperability would result in significantly fewer phone calls associated with the prescribing process.this results in annual financial benefit of $2.71 billion nationally at Level 4 and $2.65 billion at Level 3.This benefit would accrue to providers and pharmacies through reduced administrative time. Providers and pharmacies split the benefit, $1.04 billion and $1.67 billion respectively at Level 4, with pharmacies receiving slightly over 60% of the benefit due to additional phone time saved. Sensitivity Analysis CITL varied four critical factors by 50% to determine the sensitivity of the benefit projection (Figure 5-7,Table 5-5). Figure 5-7 Sensitivity of Annual National Benefit to 50% Change in Key Factors Phone min/prescription Pharmacist hourly salary Clinician hourly salary Handwritten script call rate $1.5 $3 $4.5 in billions 52 The Value of Healthcare Information Exchange and Interoperability

61 Other Potential Value from Provider-Pharmacy Interoperability In addition to the benefits derived from electronic prescribing, interconnecting provider prescribing systems and pharmacy information systems also presents opportunities for improving the overall medication management process. One key benefit is better formulary compliance. Today, in addition to clinical indications, patients preferences, and pharmacies stock availability, clinicians are constrained by patients medication benefits plans, typically administered through a pharmacy benefits manager (PBM). Complying with the formulary minimizes patients costs and avoids calls from patients, pharmacists, or PBMs requesting authorization to change prescriptions. But a simple desire to comply with the formulary on the clinician s part is insufficient. Many patients do not know which PBM administers their benefits, and formularies change on an irregular basis. Clinicians are left with the choice of wading through multiple formulary guidelines, a major workflow disruption, or prescribing without considering the formulary, risking increased patient cost or provider time if the patient calls to request a less expensive drug. Electronic access to formulary information at the time of computer-based prescribing, either directly from the PBM or indirectly via the pharmacy, can dramatically reduce formulary noncompliance and improve workflow for the clinician and pharmacist. Simultaneously, lower cost drugs in the same class can be suggested, leading to additional cost savings. Clinicians often do not have patients complete medication lists, increasing the risk of dangerous drug interactions. Early results from the Santa Barbara County Care Data Exchange project suggest that the average primary care provider knows only 70% of a patient s medications, and the average specialist is aware of only 40%. 14 Interoperability makes it possible to cross-check the pharmacy s record of patient medications for potential interactions. Similarly, the pharmacy system can send alerts to the provider system when it detects potential interactions. Readmissions associated with patients not receiving necessary drugs upon discharge could also be avoided. Tighter integration of information from pharmacy information systems could also bring outpatient providers many capabilities traditionally available only on inpatient systems. While pharmacy records regarding dispensing history and refill status are less detailed than inpatient medication administration records, they yield useful insights into a patient s medication compliance and offer potential hints for optimal care management. A study that provided physicians with six months of prescription claims history found physician detection of noncompliance in a third of cases, compared with none in the control group. 15 In the event of drug recalls or newly detected side effects, interoperable systems would facilitate identification of affected patients and allow providers and pharmacies to notify them quickly. Finally, automated refill alerts and requests by the pharmacy information systems would streamline medication management and deliver better customer service to patients. Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies 53

62 References 1. National Institute for Health Care Management (NIHCM) Research and Educational Foundation. Prescription Drug Expenditures in 2001: Another Year of Escalating Costs. NIHCM Revised May 6, NIHCM, NIHCM, NIHCM, NIHCM, Johnston D, Pan E, Walker J, Middleton B, Bates D: The Value of Ambulatory Computerized Provider Order Entry Systems. The Center for Information Technology Leadership, Institute for Safe Medication Practices. A Call to Action: Eliminate Handwritten Prescriptions Within 3 Years Electronic Prescribing Can Reduce Medication Errors. Institute for Safe Medication Practices, RxHub.The Challenges of Today s Prescribing Process. RxHub LLC, Corley ST: Electronic prescribing: a review of costs and benefits. Topics in Health Information Management 24(1):29 38, Forrester Research. Making eprescribing Pay Off, ForresterResearch Apr Workgroup for Electronic Data Interchange. Appendix 9: Financial Implications. Technical Advisory Group White Paper. WEDI Oct Ogura H, Sagara E, Iwata M, Nishioka Y, Furutani H,Yamamoto K, Kitazoe Y: Online support functions of prescription order system and prescription audit in an integrated hospital information system. Med Infor London, England, 13(3): , CITL internal estimate. 14. Brailer D,Augustinos N, Evans L, Karp S: Moving Toward Electronic Health Information Exchange:The Interim Report on the Santa Barbara County Data Exchange. California HealthCare Foundation Jul RxHub. Outpatient Prescription History in the Hospital: The Opportunity and Challenge of RxHub MEDS. RxHub LLC, The Value of Healthcare Information Exchange and Interoperability

63 Outpatient Visit and Prescription Volume per Group or Hospital-based Practice (Annual) Table 5-1 Annual outpatient Annual prescriptions visits per organization per typical organization Small Group 19,400 28,300 Medium Group 38,800 56,600 Large Group 96, ,000 Small Hospital 22,000 32,100 Medium Hospital 56,600 82,700 Large Hospital 142, ,000 Jumbo Hospital 312, ,000 Outpatient Prescription Call Volume per Group or Hospital-based Practice (Annual) Table 5-2 Level 1 Level 2 Level 3 Level 4 Small Group 15,600 2, Medium Group 31,300 5, Large Group 78,100 14,900 1, Small Hospital 17,800 3, Medium Hospital 45,700 8,680 1, Large Hospital 114,000 21,700 2, Jumbo Hospital 252,000 47,900 6, National 685,000, ,000,000 17,400,000 12,400 Chapter 5: Benefit of Interoperability between Outpatient Providers and Pharmacies 55

64 Table 5-3 Hours Spent Communicating with External Pharmacies per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group Medium Group 1, Large Group 2, Small Hospital Medium Hospital 1, Large Hospital 3, Jumbo Hospital 8,400 1, Table 5-4 Administrative Cost of Communicating with External Pharmacies per Group or Hospital-based Practice (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $23,700 $4,500 $601 $0.43 Medium Group $47,400 $9,010 $1,200 $0.56 Large Group $119,000 $22,500 $3,010 $2.15 Small Hospital $26,900 $5,120 $683 $0.49 Medium Hospital $69,300 $13,200 $1,760 $1.25 Large Hospital $173,000 $32,900 $4,390 $3.13 Jumbo Hospital $382,000 $72,700 $9,690 $6.92 Table 5-5 Sensitivity Analysis High Low High Low Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Phone minutes per prescription $1.63 $3.79 $1.08 $ % 40% Pharmacy hourly salary $1.87 $3.54 $0.83 $ % 31% Clinical hourly salary $2.19 $3.23 $0.52 $ % 19% Handwritten script call rate $2.58 $2.84 $0.13 $0.13 5% 5% in billions 56 The Value of Healthcare Information Exchange and Interoperability

65 Chapter 6: Benefit of Interoperability between Providers CITL Most patients see multiple clinicians each year, including primary care providers, specialists, and sub-specialists. Medicare beneficiaries, for example, see an average of 6.4 different providers. 1 A typical patient s medical record is scattered across several physician offices and hospitals. In this environment, optimal care requires seamless providerprovider communication to ensure access to complete patient data at the point of care. CITL examined two major components of provider-provider data exchange: chart requests and referrals (Figure 6-1). Overview of Provider-Provider Transactions Chart Requests Figure 6-1 Providers Providers Referral Requests The HIEI model defines interoperability levels in Figure 6-2. Level Provider-Provider HIEI Levels Attributes 1 Charts and referrals carried by patient or mail 2 Faxed charts and referrals 3 Free-text electronic charts and referrals 4 Encoded, standardized electronic charts and referrals Figure 6-2 Chapter 6: Benefit of Interoperability between Providers 57

66 Currently, providers have several options for exchanging patient charts. Though some methods are more efficient than others, they all require the receiving provider to integrate the new information into the patient s record. Piecing together a complete medical history is time consuming, and few providers have the time or resources to do this thoroughly. Even if the record is received electronically, significant time is required to copy text into the appropriate places in the existing record.at Level 4 HIEI, this process is automated. A reference interoperability framework allows new data to be seamlessly integrated with the receiving provider s electronic health record, and all the new information is stored where the provider expects to find it, optimizing workflow and saving time otherwise needed to combine disparate records. Similarly, referral requests involve the timely transfer of relevant information between a referring physician and a specialist. But, the referring physician often does not provide, or know to provide, the necessary information to the specialist, and vice versa. Additionally, the information provided by the specialist often does not meet physicians expectations of timeliness. 2 At HIEI Levels 1 through 3, physicians spend significant time transferring, receiving, and responding to referral requests. At Level 4, the process is automated, improving timeliness and helping to ensure that correct content is exchanged. The model assumes that providers generate and receive equal numbers of chart requests and consults. CITL recognizes that this is not true for individual providers; for example, primary care providers would likely send more referrals than they would receive. Similarly, some of the consultations generated in small office settings would go to large group practices and hospitals rather than to other providers in small groups, and chart requests would also flow between small and large provider groups. As CITL found no information on rates for specific providers, the model makes the simplifying assumption that these transactions do not cross the small/large threshold, and that the number sent and received by small providers is equal. Cost of Referrals The cost of poor provider-provider communication has been well documented in the area of specialist consultations. 3, 4 Clinicians are well aware of problems with paper-based referral letters, which often fall short in detail of the patient s current condition, the reason for the consultation, and timeliness of the communication. 5 When referral letters are systematically assessed for quality, content, clarity, request for return to general practitioner care, and time intervals between referral and consultation, and between consultation and specialist s reply, many deficiencies are noted. 6 This problem extends beyond traditional medical clinicians and affects other practitioners, such as dentists, with only 27% to 56% of referral letters judged to be of acceptable quality. 7 Further, only 44% of questions posed in referral letters are answered in specialists replies The Value of Healthcare Information Exchange and Interoperability

67 Researchers have tried to improve the quality of information by standardizing key content of referral requests and replies. 9, 10, 11 In general, clinicians agree on marking categories of information as always important in a simplistic enforcement of minimal requirements but do not endorse standardized categories for consultations. 12 Most clinicians (83% to 89%) prefer using their own words to describe the reason for consultation. However, clinicians included in the study could not agree on what constitutes a good referral letter. 13 A 2000 study by Gandhi presents a different perspective on this issue, revealing a discrepancy between what referring physicians and specialists think is important information to communicate, compared to what they actually communicate. This discrepancy is likely caused by time pressure and leads to sub-optimal quality of care. 14 In addition, significant delays are introduced by the physical transport of referral letters and replies. 15, 16 Few projects have successfully addressed the delay factors without using faxes or computer systems. Cost of Referral Requests Based on a primary care referral rate of 5.1%, 17 the proportion of primary care visit volume to total outpatient visit volume, 18 and CDC outpatient visit data, CITL estimates that U.S. clinicians make 43.1 million referrals annually (Table 6-1). A portion of these referrals are to clinicians outside of the referring physician s practice, but CITL was unable to find data to determine this proportion. Even assuming no external referrals in hospitals and large provider practices, standalone small and medium practices refer to external consultants 19.8 million times per year. Thus, to be conservative, CITL used this number in its model. CITL estimates each referral and reply letter incurs $15 in labor cost on each end, resulting in national costs of $594 million annually for external referrals (Table 6-2). Computerized referrals to specialists can improve the quality of the consultation process for both the requesting clinician and the responding specialist. Studies have shown the difficulty of implementing standard universal consultation request forms. 19 Intelligent electronic referral tools can adapt to each consultation and capture the information needed by the consultant. Interoperable systems transport the request and reply seamlessly, further optimizing the process. Cost of Chart Requests Clinicians have long recognized that missing, duplicative, and erroneous data adversely affect the delivery of care to their patients. Many institutions also acknowledge the burden imposed by this fragmentation of care. These concerns have been documented in numerous studies demonstrating inefficiencies that arise from missing, incomplete, and erroneous information. However, CITL uncovered few well-designed studies that Chapter 6: Benefit of Interoperability between Providers 59

68 quantify the clinical value and financial benefit of information exchange among providers. A 1994 study conducted by Dr. Paul Tang at a university internal medicine clinic evaluated the quality of traditional medical records. 20 While this study does not directly consider the value of interoperability, it yields important insights into the informational requirements and deficiencies in the ambulatory care environment. The authors observed 168 case presentations, formally transcribing and analyzing the conversations for data deficiencies. In 136 cases (81%), the clinicians did not have the information required to make patient care decisions during the visit. Among the 136 cases, they found that 168 of 538 missing data points (31%) involved data from patient encounters at other institutions or practices. Combining these findings, CITL estimates that clinicians are missing information from other institutions or practices in 25.3% of ambulatory visits. Combining this estimate with American Medical Association s (AMA) reported visit volume statistics, 21 CITL projects that an average outpatient clinician would need to request 980 patient charts per year from other providers to have the information needed to make optimal patient care decisions. Simultaneously, providers spend time filling incoming chart requests.the minimum cost for each request is the cost for the sending organization to pull the chart and duplicate the relevant sections, plus the cost for the receiving organization to pull its chart and integrate the new information. CITL estimates the labor and chart copying costs to be $5 to $17 and the labor cost for the organization requesting and filing the chart to be $5 to $57. The HIEI analysis applied these estimates to AMA s visit volume statistics and estimates that $13.3 billion would be spent annually copying and filing patient charts if clinicians requested records every time they were missing information (Table 6-3). Even a small provider group would spend $152,000 per year filing the charts they requested. In contrast, electronic transfer between interoperable systems would incur minimal marginal cost per chart transfer. While this missing information could also lead to return visits, suboptimal care, and adverse drug events, CITL did not include these effects in its analysis due to lack of published estimates on the frequencies of these adverse outcomes. While many clinicians may feel these costs are high, as they request fewer charts than reported in Dr. Tang s study, his analysis shows that clinicians are merely substituting educated guesses for objective data in the interest of timely and cost-effective care.this unfortunate tradeoff is purely an artifact of the current paper-based chart transport system. In fact, patient chart request costs may be understated, as they do not reflect the impact of incomplete clinical information on quality of care. While HIEI Level 3 provider-provider systems could provide the vehicle to access remote patient records on-demand, their inability to automatically organize and integrate the remote information typically leads to information and cognitive overload for the clinician and limited 60 The Value of Healthcare Information Exchange and Interoperability

69 improvements in clinical outcomes. HIEI Level 4 provider-provider systems, with ondemand transparent integration of local and remote patient records, would provide clinicians with the timely and accurate information needed for optimal care. National and Provider Benefit Projection The provider-provider interoperability benefit is calculated using a cost avoidance, or take out, model. Currently, providers are not explicitly reimbursed for the cost of preparing the specialist referral and response letters. Similarly, the cost of preparing and receiving copies of patient charts is usually considered part of the provider group business expense. Therefore, CITL considers any reductions in the cost of these two processes a direct benefit to the provider group. The Expert Panel estimated the reduction in administrative costs associated with referral and chart requests at each HIEI level (Figure 6-3). Impact of Provider-Provider HIEI Level 1 Level 2 Level 3 Level 4 Requesting Organization 0% 19% 59% 95% Receiving Organization 0% 27% 57% 95% Figure 6-3 Applying these impact estimates to the Level 1 costs of exchanging referral requests and patient charts manually leads to a total annual national benefit of $13.2 billion at Level 4. In the context of this analysis, small and medium groups are the only organizations that benefit from more efficient referral requests and chart requests. Large groups and hospitals benefit only from chart requests, though the benefit is still significant. A large group stands to save $1.43 million per year at Level 4, while a jumbo hospital would save $3.15 million (Figure 6-4). Chapter 6: Benefit of Interoperability between Providers 61

70 Figure 6-4 Total Benefit Projection per Group or Hospital and Nationally (Annual) Level 1 Level 2 Level 3 Level 4 Small Group $0 $46,700 $133,000 $215,000 Medium Group $0 $93,500 $266,000 $429,000 Large Group $0 $215,000 $599,000 $979,000 Small Hospital $0 $47,800 $138,000 $222,000 Medium Hospital $0 $123,000 $350,000 $571,000 Large Hospital $0 $314,000 $875,000 $1,430,000 Jumbo Hospital $0 $693,000 $1,930,000 $3,150,000 National $0 $2,920,000,000 $8,110,000,000 $13,200,000,000 In summary, provider-provider communication enabled by interoperable computer systems, as exemplified by electronic transfer of patient charts and referrals, would produce annual financial benefit of $13.2 billion nationally at Level 4, and $8.11 billion at Level 3. It would improve clinical outcomes of nearly 350 million outpatient visits and 20 million specialist referrals and expedite the delivery of clinical encounters that require provider-provider information exchange. Sensitivity Analysis CITL tested the sensitivity of the benefit projection to changes in the number of chart requests, the number of pages per chart, and the number of external referrals (Figure 6-5, Table 6-4). Figure 6-5 Sensitivity of Annual National Benefit to 50% Change in Key Factors Number of chart requests Pages per chart $5 $13 $21 in billions Number of external references 62 The Value of Healthcare Information Exchange and Interoperability

71 References 1. Berenson RA, Horvath J:The Clinical Characteristics of Medicare Beneficiaries and Implications for Medicare Reform. Partnership for Solutions Mar Ghandi TK, Sittig DF, Franklin M, Sussman AJ, Fairchild DG, Bates DW: Communication breakdown in the outpatient referral process. J Gen Intern Med 15: , Stille CJ, Korobov N, Primack WA: Generalist-subspecialist communication about children with chronic conditions: an analysis of physician focus groups. Ambul Pediatr 3(3): , Westerman RF, Hull FM, Bezemer PD, Gort G: A study of communication between general practitioners and specialists. Br J Gen Pract 40(340): , Stille, Westerman, Eaton AK, Furniss SJ, Snoad RJ, Newman HN: An assessment of the quality of referral letters sent to a specialist periodontist during a nine month period. J Int Acad Periodontol 3(1):7 13, Jacobs LG, Pringle MA: Referral letters and replies from orthopaedic departments: opportunities missed. BMJ 301(6750): , Newton J, Eccles M, Hutchinson A: Communication between general practitioners and consultants: what should their letters contain? BMJ 304(6830): , Newton J, Hutchinson A, Hayes V, McColl E, Mackee I, Holland C: Do clinicians tell each other enough? An analysis of referral communications in two specialties. Family Practice 11(1):15 20, Tattersall MH, Butow PN, Brown JE,Thompson JF: Improving doctors letters. Med J Aust 177(9): , Newton, Westerman, Gandhi, Jacobs, Westerman, Forrest CB: Primary care gatekeeping and referrals: effective filter or failed experiment? BMJ 326: , Cherry DK, Burt CW,Woodwell DA: National Ambulatory Medical Care Survey: 2001 summary. Advance Data (337):1 44, Aug Westerman, Tang PC, Fafchamps D, Shortliffe EH: Traditional medical records as a source of clinical data in the outpatient setting. Proc Annu Symp Comput Appl Med Care 1994: , American Medical Association. Physician Socioeconomic Statistics AMA, Chapter 6: Benefit of Interoperability between Providers 63

72 Table 6-1 Referral Volume per Group or Hospital and Nationally (Annual) Referrals Annual Included Outpatient Visits PCP Visits Referrals in Model Small Group 19,400 13, Medium Group 38,800 26,100 1,330 1,330 Large Group 96,900 65,300 3,330 Small Hospital 22,000 14, Medium Hospital 56,600 38,200 1,950 Large Hospital 142,000 95,400 4,870 Jumbo Hospital 312, ,000 10,700 National 1,260,000, ,000,000 43,200,000 19,800,000 Table 6-2 Referral Volume and Cost by Organization Type and Nationally (Annual) Paperwork Annual Cost Outpatient Included Visits PCP Visits Referrals Paperwork Cost in Model Small Group 486,000, ,000,000 16,700,000 $501,000,00 $501,000,000 Medium Group 90,600,000 61,100,000 3,110,000 $93,400,000 $93,400,000 Large Group 247,000, ,000,000 8,490,000 $255,000,000 Small Hospital 26,400,000 17,800, ,000 $27,200,000 Medium Hospital 130,000,000 87,300,000 4,450,000 $134,000,000 Large Hospital 139,000,000 93,800,000 4,780,000 $143,000,000 Jumbo Hospital 137,000,000 92,700,000 4,730,0000 $142,000,000 National 1,260,000, ,000,000 43,200,000 $1,300,000,000 $594,000, The Value of Healthcare Information Exchange and Interoperability

73 Costs Associated with Patient Chart Requests per Group or Hospital and Nationally (Annual) Table 6-3 Annual Visits Outpatient needing Cost copying Cost Visits Chart chart filing chart Total Cost Small Group 19,400 4,900 $53,900 $152,000 $206,000 Medium Group 38,800 9,800 $108,000 $304,000 $411,000 Large Group 96,900 24,500 $269,000 $759,000 $1,030,000 Small Hospital 22,000 5,570 $61,200 $173,000 $234,000 Medium Hospital 56,600 14,300 $157,000 $444,000 $601,000 Large Hospital 142,000 35,800 $394,000 $1,110,000 $1,500,000 Jumbo Hospital 313,000 79,000 $869,000 $2,450,000 $3,320,000 National 1,260,000, ,000,000 $3,490,000,000 $9,840,000,000 $13,300,000,000 Sensitivity Analysis Low High Low High Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Number of chart requests $6.90 $19.6 $6.33 $ % 48% Pages per chart $8.71 $17.8 $4.52 $ % 34% Number of external referrals $13.0 $13.5 $0.28 $0.29 2% 2% in billions Table 6-4 Chapter 6: Benefit of Interoperability between Providers 65

74 66 The Value of Healthcare Information Exchange and Interoperability

75 Chapter 7: Benefit of Interoperability between Providers and Public Health Departments CITL The U.S. public health system is a network of federal, state, and local departments that pursues a wide array of population health objectives. This chapter describes how an interoperable health system would enhance specific programs related to mandated disease reporting and vital statistics, and how it could support other public health aims. Disease Reporting and Vital Statistics Providers send disease and vital statistics to local health departments (Figure 7-1). Overview of Provider-Public Health Transactions Providers Disease Reports, Vital Statistics Local Public Health Dept. Figure 7-1 State laws require providers and laboratories to report cases of certain diseases to local and state public health departments. Local health departments forward reports to state health departments, which then utilize the reports for intervening in individual cases, conducting outbreak investigations, and transmitting reports of nationally notifiable diseases to the federal Centers for Disease Control and Prevention (CDC). Reporting of nationally notifiable diseases to the CDC occurs largely through the National Notifiable Diseases Surveillance System, which collects and disseminates data about disease trends. Before information moves onto the electronic highway between states and the CDC, it first travels on a variety of local routes. Providers wishing to make reports are faced with an array of options for data submission, including phone, fax, hard copy morbidity report forms, modem dial-up, and diskette. 1, 2, 3 Though states are moving toward Webbased reporting of diseases and vital statistics from health care providers and local health departments, many data are not now provided electronically. State and local departments Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 67

76 bear the burden of transforming these reports into digital form for the CDC. Much of the public health system operates at HIEI Levels 1 and 2 (Figure 7-2). Figure 7-2 Provider-Public Health HIEI Levels Level Attributes 1 Paper report forms delivered by mail or verbally reported 2 Faxed case and vital statistics reports 3 Free text electronic case and vital statistics reports 4 Encoded electronic case and vital statistics reports The CDC estimates that states maintain more than 100 different systems to collect data. 4 These individual data systems, each with its own communications mode, complicate the data collection process. Furthermore, they require active participation from clinicians and office and laboratory staff to recognize reportable cases, transcribe relevant information, and relay it to the appropriate local and state officials. Several studies have shown that notifiable diseases are underreported. A 2002 analytical review of U.S. studies of the completeness of disease reporting, from 1970 to 1999, found that 79% of sexually transmitted diseases, tuberculosis, and AIDS cases were reported, and that the reporting rate for all other notifiable diseases was only 49%. 5 Authors cite many reasons for not reporting, including not being aware of the legal requirement to report, not knowing what diseases should be reported, not knowing how or to whom to report, assuming someone else made the report, wishing to protect 6, 7, 8, 9, 10 patient privacy, or simply being too busy. For case reporting, an interoperable health system would reduce dependence on busy clinicians and other individuals. Instead, public health officials would rely on information resident in EHRs and laboratory systems, such as diagnosis, microbiology and pathology results, and patient demographic information (allowed to be shared with public health agencies under HIPAA privacy regulations 11 ). Electronic data would flow not only from providers to public health agencies, but also from agencies to providers/clinicians and laboratories, providing new case identification algorithms as states revise their lists of diseases. Except for infrequent exchanges among public health officials and clinicians about additional information needed to follow up on a case, reporting could become completely automated. 68 The Value of Healthcare Information Exchange and Interoperability

77 Early experiments with automated reporting have focused on laboratories and have generated promising results. In Hawaii, the Department of Health (HDOH) tested a procedure in which it connected with lab information systems each day and scanned test results. 12 Flagged cases were encrypted and transferred to HDOH, complete with details about the specimen and patient and provider/clinician information.a six-month evaluation of five conditions showed that this electronic system resulted in a 2.3-fold increase in reports, that electronic reports arrived 3.8 days earlier, and that they were significantly more complete than conventional paper reports. An electronic laboratory reporting system at the Indiana Network for Patient Care provided excellent sensitivity and specificity, and results were reported two to seven days earlier than with manual methods. 13 A system in Pennsylvania produced reports four days earlier than paper-based methods. 14 Similar automated processes between state health departments and provider/clinician EHRs would theoretically achieve comparable performance, not only for notifiable diseases but also for other reportable events, such as births, deaths, and new cancer cases. These data are also reported locally and aggregated at state and national levels. National Benefit Projection CITL projected the impact of interoperability on the administrative cost of reporting notifiable cases.the Expert Panel estimated that HIEI would reduce providers administrative effort by 0%, 25%, 50%, and 100% at each HIEI level, and by 0%, 40%, 60%, and 100% for public health departments. Experts also stated that 10% of transactions would always be handled manually due to content. CITL applied the 95% upper bound of efficacy to these figures to determine the impact of HIEI at each level (Figure 7-3). Impact of HIEI on Case Reporting Level 1 Level 2 Level 3 Level 4 Proportion of provider administrative cost avoided 0% 21% 43% 85% Proportion of public health department administrative cost avoided 0% 34% 51% 85% Figure 7-3 Automated reporting would reduce the rate of unreported notifiable disease cases.with full reporting, public health departments would receive about eight million disease and vital statistics case reports each year (Table 7-1). Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 69

78 Using a published estimate of the staff time required 15 and an internal estimate of staff costs, the HIEI model estimates the cost of completing and sending notifiable disease reports (by providers and clinicians), and assumes the cost of receiving and organizing the reports (by public health departments) to be the same. As CITL did not find other published cost information, the model extends these cost estimates to reporting of births, deaths, and cancer.with full reporting, the total annual cost of transporting these data would be $229 million annually (Table 7-2). The analysis assumes that even automated reports require some human handling at both ends of the transaction (sending provider and receiving public health agency). The Expert Panel estimates that the Level 4 cost per report would be $0.03 on each end. Based on the impact at each HIEI level, the model projects annual benefits of $195 million with Level 4 interoperability, and $107 million with Level 3 interoperability (Figure 7-4). Figure 7-4 National Benefit Projection Public Health and Provider (Annual) Level 1 Level 2 Level 3 Level 4 Total Reports from Providers to Public Health Departments 8,179,128 Cost to Process a Report Manually $14.02 Cost to Process a Report Electronically $0.03 Provider Administrative Cost Avoided to Send Reports 0% 21% 43% 85% Average Provider Cost to Send a Report $14.02 $11.05 $8.08 $2.13 Provider Total Cost $115,000,000 $90,400,000 $66,100,000 $17,400,000 Public Health Administrative Cost Avoided to Receive Reports 0% 34% 51% 85% Average Public Health Cost to Receive a Report $14.02 $9.27 $6.89 $2.13 Public Health Total Cost $115,000,000 $75,800,000 $56,300,000 $17,400,000 National Total Cost $229,000,000 $166,000,000 $122,000,000 $34,800,000 National Benefit $0 $63,200,000 $107,000,000 $195,000, The Value of Healthcare Information Exchange and Interoperability

79 The national benefit at Level 4 would accrue to providers and public health departments equally, with each gaining $97.3 million in administrative benefit annually. At Level 3, public health departments accrue a greater share of the total benefit, $58.4 million or 55%, due to a more significant reduction in administrative expense compared to providers. Even though labs are often automated and some states receive the vast majority of disease reports electronically, the reports are not always standardized and often lack relevant patient information needed for follow-up, requiring telephone or other consultation to fill in the gaps. 16, 17, 18 Level 4 interoperability would optimize this reporting. This model vastly simplifies a complex reporting structure. It calculates benefits from the cost of full reporting of notifiable diseases, rather than the current state of partial reporting. And it does not account for the additional benefits that would accrue from transactions ignored in this analysis. These include reporting diseases notifiable at the state level but not reported nationally, reports from entities such as funeral homes and nursing homes, transporting data among local and state health departments, transforming data from multiple formats to electronic files, and automating health plan reporting related to conditions such as injuries, occupational health risks, and birth defects. Sensitivity Analysis As shown in Figure 7-5 and Table 7-3, the analysis of benefit is most sensitive to the Level 1 cost of completing reports, which is dependent on the time required and the associated salary costs. Sensitivity of Annual National Benefit to 50% Change in Key Factors Figure 7-5 Cost to complete a report Percent of reports requiring manual handling Percent of cases reported by providers Cost per electronic transaction $45 $195 $345 in millions Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 71

80 Other Potential Value from Provider-Public Health Interoperability A data collection system that relies on interoperability for automated electronic capture of infectious disease and vital statistics data addresses several shortcomings of conventional reporting. It ensures faster and more complete data capture; it provides instantaneous data availability in multiple locations; and it enables multi-jurisdictional data pooling that increases sensitivity to outbreaks that cause only one or two cases in multiple local areas. But such a case reporting system still relies on a laboratory or clinical diagnosis before a report is made, and it ignores other information sources about bioaerosol, water supply, and foodborne outbreaks. In a study of all outbreaks reported in the Morbidity and Mortality Weekly Report in 1999 to 2000, in all categories, there were outbreaks with delays of at least 12 days between onset of the first illness and discovery of the outbreak. 19 Public health leaders now envision a syndromic surveillance system that continuously aggregates data from many sources to identify early warning signs even before definitive diagnosis. Researchers are experimenting with nontraditional data, analyzing emergency department chief complaints, 20, 21, 22 pharmacy dispensing information, 23 calls to consumer health lines, 24 and data from ambulatory visits. 25 The Department of Defense monitors the incidence of seven syndrome groups at over 300 military treatment facilities worldwide. 26 Work and school absenteeism, over-the-counter pharmacy sales, sales of facial tissues and orange juice in grocery stores, traffic on health-related Websites, autopsy findings, reports of animal diseases by veterinarians, and calls to 911 could all contribute to a full picture of symptom and disease prevalence, and population health trends. The Utah Department of Health (UDOH) implemented a multi-faceted surveillance system for the Salt Lake City Olympics in Using a combination of phone reporting, manual review, and electronic data capture, UDOH monitored emergency departments, airborne pathogen detectors, autopsies, poison control center events, clinics, workplaces, pharmacies, and veterinarian clinics for unusual activity. An important component was the Realtime Outbreak and Disease Surveillance system (RODS), which collected electronic clinical data in real time from emergency rooms and acute care facilities in seven counties, and automatically analyzed data looking for changes in patterns of key symptoms. True national syndromic surveillance cannot exist without full healthcare information exchange and interoperability. Ideally, standardized data would flow continuously to aggregation points for analysis. Such a system pools disparate data, improves data quality with embedded logic and completeness checks, enables fast reporting, and gives public health professionals a more integrated, more complete picture of trends and early warning signs.an interoperable system also enables authorized officials to view relevant source data such as individual patients EHRs, a feature identified as important in distinguishing among false alarms, natural outbreaks, and bioterrorist attacks The Value of Healthcare Information Exchange and Interoperability

81 An electronic, interoperable system makes it feasible to add new data sources as they become available.and it enables fast transmission of detected events to providers and to others who may be involved in managing an outbreak, such as pharmacies, police and fire departments, immigration officials, and news outlets. The CDC s Public Health Information Network encompasses data collection in its National Electronic Disease Surveillance System (NEDSS), and also transmits information via its Health Alert Network. NEDSS is laying the groundwork for continuous capture of data needed for public health surveillance. Its initial focus is on infectious disease, but the long term objective is to capture data from clinical, laboratory, and other sources that would also support monitoring, such as blood lead levels, symptoms reported in 911 calls and emergency department visits, and antibiotic resistance. 29 The system is taking a modular, standardsbased approach that permits local and state adaptations, and facilitates development of standard messages that can flow in an interoperable system. Networked databases would make it possible to identify patterns across diseases and locales, analyses that are now difficult given the number of separate monitoring systems and databases. States that adopt the base system have access to federal funds for planning and development. Perhaps the ultimate test of public health surveillance is detection and response to bioterrorism. Speed of detection is crucial in a bioterrorism scenario where a pathogen reaches large numbers of people all at the same time, rather than spreading slowly through a population.the window of opportunity for treatment is particularly narrow, only a few days for fast-incubating organisms.as antidotes may not exist for agents used in an attack, early detection and containment could have a profound impact on morbidity and mortality. Projecting scenarios of potential losses from attacks with brucellosis, tularemia, and anthrax, Kaufmann and colleagues cited delays in implementing prophylaxis programs as the single most important factor in increased losses. 30 Dato took the analysis a step further, estimating that the benefit of starting prophylaxis earlier in days 2 and 3 of an anthrax attack on 100,000 persons could be as much as $200 million an hour. 31 CITL s analysis does not include potential benefits from early detection of such outbreaks. Since it only considers benefits from improved information handling due to interoperability, it should be viewed as a conservative estimate of the value of HIEI in public health. Interoperability promises to make the current system of case reporting vastly more efficient, and it is a necessary condition for advanced surveillance and intervention systems contemplated for the future. Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 73

82 References 1. Koo D, Caldwell B:The Role of Providers and Health Plans in Infectious Disease Surveillance. Effective Clinical Practice 2: , The National Electronic Disease Surveillance System Working Group. National Electronic Disease Surveillance System (NEDSS): A standards-based approach to connect public health and clinical medicine. J Pub Health Management Practice 7(6):43 50, Loonsk JW: Public Health Information Network, May 13, The National Electronic Disease Surveillance System Working Group, Doyle TJ, Glynn K, Groseclose SL: Completeness of Notifiable Infectious Disease Reporting in the United States: An Analytical Literature Review. American Journal of Epidemiology 155: , Disease Prevention News: Communicable Disease Reporting. Texas Department of Health 55(17), Konowitz PM, Petrossian GA, Rose DN: The Underreporting of Disease and Physicians Knowledge of Reporting Requirements. Public Health Reports 99(1):31 35, Weiss BP, Strassburg MA, Fannin SL: Improving Disease Reporting in Los Angeles County: Trial and Results. Public Health Reports 103(4): , Jones JL, Meyer P, Garrison C, Kettinger L, Hermann P: Physician and Infection Control Practitioner HIV/AIDS Reporting Characteristics. American Journal of Public Health 82(6): , Schramm MM,Vogt RL, Mamolen M: The Surveillance of Communicable Disease in Vermont: Who Reports? Public Health Reports 106(1):95 97, HIPAA Regulations: Effler P, Chang-Lee M, Bogard A, Ieong MC, Nekomoto T, Jernigan D: Statewide System of Electronic Notifiable Disease Reporting From Clinical Laboratories: Comparing Automated Reporting With Conventional Methods. JAMA 282(19): , Overhage JM, Suico J, McDonald CJ: Electronic Laboratory Reporting: Barriers, Solutions and Findings. J Public Health Management Practice 7(6):60 66, Panackal AA, M ikanatha NM, Tsui FC, McMahon J, Wagner MM, Dixon BW, Zubieta J, Phelan M, Mirza S, Morgan J, Jernigan D, Pasculle AW, Rankin JT, Hajjeh RA, Harrison LH:Automatic Electronic Laboratory-Based Reporting of Notifiable Infectious Diseases at a Large Health System. Emerging Infectious Diseases 8(7): , Disease Prevention News, Schramm, Effler, Overhage, Dato V, Wagner MM, Allswede MP, Aryel R, Fapohunda A: The Nation s Current Capacity for the Early Detection of Public Health Threats including Bioterrorism. AHRQ Confidential Publication, Tsui FC, Wanger MM, Dato V, Ho Chang CC: Value of ICD-9-Coded Chief Complaints for Detection of Epidemics. J Am Med Inform Assoc 9(Nov-Dec suppl):s41-s47, Espino JU,Wagner MM:Accuracy of ICD-9-coded Chief Complaints and Diagnoses for the Detection of Acute Respiratory Illness Reis BY, Mandl KD: Time Series Modeling for Syndromic Surveillance. BMC Medical Informatics and Decision Making 3:2, The Value of Healthcare Information Exchange and Interoperability

83 23. Yokoe DS, Subramanyan GS, Nardell E, Sharnprapai S, McCray E, Platt R: Supplementing Tuberculosis Surveillance with Automated Data from Health Maintenance Organizations. Emerging Infectious Diseases 5(6), Harcourt SE, Smith GE, Hollyoak V, Joseph CA, Chaloner R, RehmanY,Warburton F, Ejidokun OO,Watson JM, Griffiths RK: Can Calls to NHS Direct Be Used for Syndromic Surveillance? Commun Dis Public Health 4(3): , Lazarus R, Kleinman K, Dashevsky I, Adams C, Kludt P, DeMaria A, Platt R: Use of Automated Ambulatorycare Encounter Records for Detection of Acute Illness Clusters, including Potential Bioterrorist Events. Emerging Infectious Diseases 8(8): , ESSENCE (Electronic Surveillance System for Early Notification of Community-based Epidemics) Gesteland PH, Wagner MM, Chapman WW, Espino JU, Tsui FC, Gardner RM, Rolfs RT, Dato V, James BC, Haug PJ: Rapid Deployment of an Electronic Disease Surveillance System in the State of Utah for the 2002 Olympic Winter Games. AMIA Annual Symposium , Tsui FC, Espino JU,Wagner MJ, Gesteland P, Ivanov O, Olszewski RT, Liu Z, Zeng X, Chapman W,Wong WK, Moore A: Data, Network, and Application: Technical Description of the Utah RODS Winter Olympic Biosurveillance System. AMIA Annual Symposium , National Electronic Disease Surveillance System: Kaufman AF, Meltzer MI, Schmid GP: The Economic Impact of a Bioterrorist Attack: Are Prevention and Postattack Intervention Programs Justifiable? Emerging Infectious Disease 3(2):83 94, Dato, Summary of Notifiable Diseases United States, 2001: Morbidity and Mortality Weekly Report. May 2, 2003; 50(53): Doyle, Summary of Notifiable Diseases United States, Doyle, Schramm, CDC Wonder Reference Data: National Center for Health Statistics: National Vital Statistics Report,Vol 51, No Estimated New Cancer Cases by Site and State, US, 2001: CA Cancer J Clin 2001;51:17. Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 75

84 Table 7-1 Cases Reported by Providers to Public Health Departments (Annual) Reported cases of STDs, TB, AIDS/HIV in ,235,000 Completeness of STD, TB, AIDS/HIV reporting 33 79% STD, TB, AIDS/HIV cases with full reporting 1,563,291 Reported cases of all other reportable conditions in ,300 Completeness of reporting for all other conditions 35 49% All other cases with full reporting 339,388 Reportable cases with full reporting 1,902,679 Proportion of initial reports from labs 36 71% Proportion of initial reports from providers 29% Notifiable disease cases reported by providers with full reporting 551,777 Births reported in ,941,553 Deaths reported in ,417,798 New cancer cases reported in ,268,000 Total reports from providers to public health departments 8,179,128 Table 7-2 Cost of Full Reporting at Level 1 (Annual) Total reports from providers to public health departments 8,180,000 Minutes for provider to complete report 35 Provider cost (mix of clinician, staff), annual salary + fringe $50,000 Provider cost to file, public health cost to receive report $14.02 Providers' annual cost of filing reports $115,000,000 Public health departments' annual cost of receiving reports $115,000,000 Total annual cost of Level 1 reporting $229,000, The Value of Healthcare Information Exchange and Interoperability

85 Sensitivity Analysis High Low High Low Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Cost to complete a Level 1 report $0.10 $0.29 $0.10 $ % 50% Percent of reports requiring manual handling $0.18 $0.21 $0.01 $0.01 6% 6% Percent of cases reported by providers $0.19 $0.20 $0.01 $0.01 3% 3% Cost per electronic report in billions $0.19 $0.19 $0.00 $0.00 0% 0% in billions Table 7-3 Chapter 7: Benefit of Interoperability between Providers and Public Health Departments 77

86 78 The Value of Healthcare Information Exchange and Interoperability

87 Chapter 8: Benefit of Interoperability between Providers and Payers CITL Interoperability between provider and payer information systems has the potential to produce substantial returns for both stakeholders and the U.S. healthcare system as a whole. Payers spend approximately 12% to 22% of premium dollars on administrative expenses. 1,2,3,4 Many healthcare stakeholders agree that these expenditures are too high and view administrative data exchange as an area ripe for cost reduction through administrative simplification, standardization, and adoption of IT. This chapter presents projected provider and payer benefits from electronic exchange of standardized administrative data. Payers and providers exchange administrative data in order to document services delivered and ensure that providers are reimbursed according to contracted rates.these data include patient demographic information, enrollment status, coverage details, and billing and payment information. Currently, transactions between providers and payers enjoy a relatively high degree of standardization, largely due to the Administrative Simplification (AS) provisions in the Health Insurance Portability and Accountability Act (HIPAA). 5 The AS provisions are the most recent and most comprehensive of federal efforts to standardize electronic exchange of administrative data among providers, payers, and other stakeholders.as of October 16, 2003, all entities covered under HIPAA AS and currently performing transactions electronically were required to conduct a defined set of transactions using standard messaging formats and code sets (Table 8-1). Congress projected substantial savings from these standards. In the final HIPAA regulation, CMS estimated net savings of $29.9 billion for the period 2002 to 2011, with $13.1 billion accruing to health plans and $16.7 billion to providers. 7 Other analyses have also estimated large savings. In their 1993 Annual Report, the Workgroup for Electronic Data Interchange (WEDI) projected savings of $42.3 billion $16.2 billion for payers/employers, and $26.1 billion for providers from EDI-based standardized administrative transactions rolled out over six years. 8 Regional administrative datasharing consortia, like the New England Healthcare EDI Network, report substantial savings from electronic eligibility transactions. 9,10 Post HIPAA, researchers have developed other assessments and tools to allow providers and payers to conduct their own HIPAA AS cost-benefit analyses. 11,12,13 Since provider-payer interoperability is federally mandated, cost-benefit analysis may have little influence on the decision of a provider or payer to exchange standardized data electronically. Nonetheless, to estimate fully the value of interoperability between Chapter 8: Benefit of Interoperability between Providers and Payers 79

88 providers and stakeholders, CITL projected annual HIEI benefits for a core set of transactions using recent encounter and transaction volume data. Seven core administrative transactions constitute the majority of provider-payer communications: eligibility inquiry and response, claims submission, claims attachments, claims status inquiry, remittance advices, referrals and preauthorizations, and coordination of benefits (Figure 8-1). Figure 8-1 Overview of Provider-Payer Transactions Claims attachments Claims submission Coordination of benefits Providers Eligibility, Referrals Claims status inquiry Payers Remittance advice HIPAA mandates standards for electronic provider-payer interoperability (Level 4), while still allowing for the continuation of paper-based transactions in certain instances (Level 1). Levels 2 and 3 interoperability, which describe nonstandardized electronic transactions, are not legally permitted under HIPAA.The analysis in this chapter quantifies the benefit of transitioning from Level 1 to Level 4 (Figure 8-2). Figure 8-2 Provider-Payer HIEI Levels Level Attributes 1 Paper/phone transactions 2 Fax-based or electronic transmission (not an option) of image file 3 Non-encoded, nonstandardized (not an option) electronic transactions 4 Encoded, standardized electronic transactions To calculate benefit from Level 4 interoperability, CITL first determined the total current volume of a given administrative transaction and discounted this volume by esti- 80 The Value of Healthcare Information Exchange and Interoperability

89 mates of the current percent of these transactions performed electronically. 14,15,16,17,18,19,20,21 This yielded the total current volume of manual transactions or the potential cost savings from interoperability. CITL considered only hospital (or institutional) and physician (or professional) related transactions. Pharmacy claims data, already largely exchanged electronically by pharmacies and PBMs/payers, was out of scope for this analysis. Next, CITL derived total benefit for provider-payer interoperability by simply multiplying the transaction volume by average cost savings estimates for given transactions. Included in the cost savings are FTE and other labor cost savings achieved when manual administrative processes are converted to electronic, standardized ones. Additionally, the value from decreased claim rejections was considered (Table 8-2). Value of Interoperability to Physician Offices and Hospitals Very few published sources report data regarding the distribution and costs of both manual and electronic provider-payer transactions. As with other parts of the analysis, CITL combined time and cost estimates from published sources and Expert Panelists to calculate potential HIEI savings. Physician offices On average, physician offices do only about half of their insurance-related transactions electronically, and the potential impact of interoperability is therefore large. By moving to Level 4 HIEI, offices could save from $1 to $10 per transaction (Table 8-3). Moving from paper-based to electronic transactions also reduces the number of rejected claims. Offices find that improved claims quality decreases the number of claims rejections. 22 With approximately 10% of claims denied on first submission, 23 the Expert Panels estimate that resubmissions cost about 1.5 times the original to prepare and submit. This is a matter of real financial consequence to clinician-owned practices. The Panel estimates that Level 4 interoperability would avoid between 9% and 25% of these rejections (Table 8-4). Level 4 interoperability also makes eligibility inquiries easier, and the Expert Panel estimates that offices would increase the number of inquiries from a current rate of 20% of visits, to 90%.This increase and its attendant costs are factored into the projections. Combining the effects of these three factors reducing labor costs by making all transactions electronic, reducing claims rejections and rework, and increasing the number of eligibility transactions results in annual Level 4 administrative benefit shown in Figure 8-3. Chapter 8: Benefit of Interoperability between Providers and Payers 81

90 Figure 8-3 Benefit per Group at Level 4 (Annual) Small Group Medium Group Large Group Eligibility $2,780 $5,560 $13,900 Claims submission $8,310 $16,600 $41,500 Claims status inquiry $7,890 $15,800 $39,400 Claims attachments $21,400 $42,800 $107,000 Remittance advice $16,100 $32,200 $80,600 Referrals/Preauthorizations $372 $744 $1,860 Coordination of benefits $6,520 $13,000 $32,600 Total $63,400 $127,000 $317,000 Offices stand to save $12,610 per clinician by making their administrative systems interoperable with payers.the majority of the benefit comes from automating claims attachments and remittance advices. Conversely, automating referral authorizations and precertifications saves little, due to the relatively low volumes of these transactions. Hospitals Hospitals already submit most claims electronically. However, they still rely on manual processes to conduct many other transactions like claims attachments and coordination of benefits (Table 8-5), leaving room for Level 4 savings. Like offices, Level 4 interoperability would reduce labor costs by making all transactions electronic, reducing the number of rejected claims and increasing the volume of eligibility transactions. One key difference between physician office and hospital projections, however, is the current rate of eligibility transactions. The Expert Panel estimates that hospitals currently check patient eligibility in 34% of encounters (inpatient and outpatient) and projects an increase to 90% with Level 4 interoperability. As in the office analysis, benefit is discounted by the additional costs of increased electronic eligibility checking. Combining these three factors making all insurance transactions electronic, reducing rejected claims, and increasing eligibility transactions results in annual benefit of Level 4 interoperability as shown in Figure The Value of Healthcare Information Exchange and Interoperability

91 Total Benefit by Transaction Type per Hospital at Level 4 (Annual) Small Hospital Medium Hospital Large Hospital Jumbo Hospital Eligibility $24,300 $66,600 $165,000 $347,000 Claims submission $3,550 $9,300 $23,800 $49,900 Claims status inquiry $13,500 $35,200 $90,200 $189,000 Claims attachments $36,500 $95,600 $245,000 $514,000 Remittance advice $4,120 $10,800 $27,600 $58,000 Referrals Preauthorizations $3,100 $9,430 $23,000 $44,600 Coordination of benefits $7,120 $18,600 $47,700 $100,000 Total $92,300 $246,000 $622,000 $1,300,000 Figure 8-4 Claims attachments and eligibility checking produce the most benefit a result of converting high volume (eligibility) and high cost (claims attachments) transactions to electronic platforms. Preauthorizations and claims submission save the least a reflection of low preauthorization volumes and the already high penetration of electronic claims submission by hospitals. Value of Interoperability to Commercial Payers, Medicare, and Medicaid Payers are highly automated for certain transactions with providers, but important differences exist between commercial insurers and health plans, and the Medicare and Medicaid programs. In general, commercial payers tend to conduct fewer transactions with physician offices and hospitals than do Medicare and Medicaid (Table 8-6), and they conduct a smaller proportion electronically (Table 8-7). Payers could save from $.60 to $11 per transaction by converting from manual to Level 4 HIEI processing (Table 8-8). Payers also differ in the proportion of transactions performed electronically, with Medicare and Medicaid having higher penetration and savings potential per transaction for claims submission (electronic receipt and processing of claims) and coordination of benefits transactions. Like providers, payers reprocess fewer rejected claims and handle more eligibility checks with Level 4 interoperability, and assumptions incorporated in the office and hospital estimates above are also included here. Combining the reduced labor costs of electronic transactions, reduced number of claims rejections, and higher volume of eligibility inquiries results in projected benefit as shown in Figure 8-5. Chapter 8: Benefit of Interoperability between Providers and Payers 83

92 Figure 8-5 Total Payer Benefit by Payer Type (Annual) Commercial Medicare Medicaid Total Eligibility $131 $472 $484 $1,090 Claims submission $576 $887 $740 $2,200 Claims status inquiry $107 $430 $444 $981 Claims attachments $434 $1,740 $1,800 $3,970 Remittance advice $25.3 $130 $129 $284 Referrals/Preauthorizations $25.8 $62.9 $61.8 $151 Coordination of benefits $313 $411 $438 $1,160 Total by Payer Type $1,610 $4,130 $4,100 $9,840 in millions Though Medicare and Medicaid process more transactions electronically, they stand to realize greater benefit from Level 4 than commercial payers because of their high volumes and greater savings potential on some transactions. For claims submission and coordination of benefits, CITL found that Medicare and Medicaid save more than commercial payers on a per transaction basis because they process electronic transactions at lower cost.though this may also be true for the other types of transactions, CITL was unable to find sufficient supporting evidence. National Benefit Projection CITL assigned the benefit projected above to 4,908 community hospitals and to the distribution of practicing physicians to project combined national provider-payer benefit of $20.1 billion per year (Figure 8-6). 84 The Value of Healthcare Information Exchange and Interoperability

93 National Provider-Payer Benefit by Transaction Type (Annual) Providers Payers Total Eligibility $864 $1,090 $1,950 Claims submission $1,170 $2,200 $3,370 Claims status inquiry $1,310 $981 $2,300 Claims attachments $3,560 $3,970 $7,540 Remittance advice $2,220 $284 $2,500 Referrals/Preauthorizations $117 $151 $267 Coordination of benefits $1,010 $1,160 $2,170 Total $10,300 $9,840 $20,100 in millions Figure 8-6 Automating claims attachments produces over one third of the benefit, more than $7.5 billion annually. Claims attachments require significant staff time to prepare and process (one provider estimates 25 minutes to prepare a single paper-based attachment 24 ), and they are relatively common (about 15% of claims require attachments 25 ). Making this process electronic yields sizeable administrative savings. Electronic claims submission produces the next largest portion of benefit, mostly accruing to payers from auto-adjudication the receipt, review, and approval of claims electronically. In this analysis, 49% of national benefits accrue to payers, with Medicare and Medicaid accruing most of the benefit, primarily from standardized claims submissions and claims attachments. Since clinician offices conduct a large number of transactions, and because few of these transactions are currently electronic, they also reap a significant portion of total benefit (42%). In contrast, all hospital benefits combined amount to only 9% of total benefit, mostly from automated eligibility and claims attachments. As the majority of hospital claims are submitted electronically, 26 hospitals already realize benefit from payer interoperability. CITL projections are significantly higher than those from other sources. 27, 28 When considered in the context of total national healthcare administrative expenditures, the projections create a different picture. Sources estimate that payers, hospitals, and physicians collectively spent $898 per capita on administrative overhead in 2001, including checking eligibility, processing claims, and conducting referrals and preauthorizations. 29, 30 At $898 per person, administrative expenses would be $253 billion, or 18% of national health expenditures in Benefit of $20.1 billion would equal an 8% reduction in administrative costs substantial, but not unrealistic given the current lack of automation in small provider settings. Chapter 8: Benefit of Interoperability between Providers and Payers 85

94 Sensitivity Analysis CITL varied five key factors to determine the sensitivity of the benefit projection to a 50% increase and decrease in each.the Level 4 annual payer benefit of $20.1 billion is most sensitive to the cost savings and volume associated with claims attachments (Figure 8-7). Figure 8-7 Sensitivity of Annual National Benefit to 50% Change in Key Factors Claims attachment savings Claims attachment volume Remittance advice volume Claims submission savings $16 $20 $24 in billions Remittance advice savings Increasing the claims attachment savings and volume by 50% leads to an 18% increase in benefit to $23.7 billion. Decreasing the savings by 50% results in an 18% decrease in benefit to $16.5 billion. Remittance advice volume does not have as significant an impact on benefit. Increasing the volume by 50% results in an additional $2.37 billion in benefit (Table 8-9). Other Potential Value from Provider-Payer Interoperability Cleaner claims would provide other financial benefits not quantified in this model. Eligibility errors and lost copayments account for $5.4 billion in costs, and hospitals experience an average bad debt loss of 5.3%. 32 Cleaner claims and increased automation would improve these rates and enhance provider revenues. Since providers are often unable to collect for services without valid referrals, they would also benefit from automated referrals and preauthorizations, at the expense of payers. Providers are likely to experience additional revenue enhancement from the interest income on these new revenues. Providers would benefit from improved cash flow and smaller accounts receiv- 86 The Value of Healthcare Information Exchange and Interoperability

95 able (A/R), 33 and they may see a one-time cash acceleration from a shortened reimbursement cycle. In one pediatric practice in Ohio, automated eligibility verification and electronic submission of accurate claims cut the A/R cycle from 64 days to 28 days. 34 The estimated benefit presented here is for Level 4 interoperability, which includes all standardized, electronic transactions but does not include the benefits of an ideal, fully automated future state.a real-time claim adjudication model would be characterized by all transactions (e.g., eligibility, claims submission, coordination of benefits) occurring before or during the patient encounter with minimal human involvement. A Milliman and Robertson analysis of such a system projected a 50% to 80% reduction in payer claims processing expenses a national payer savings of up to $2.5 billion annually. 35 This estimate is greater than the Level 4 commercial benefit of $1.8 billion projected in this analysis. Thus, CITL believes that even greater value can be realized as providerpayer interoperability is maximized and claims processes are fully automated. Chapter 8: Benefit of Interoperability between Providers and Payers 87

96 References 1. Health Insurance Association of America. Eye on Managed Care Financial Trends. Health Insurance Association of America, A.M. Best. Narrow Margins, Rising Medical Costs and Consumer Pressures Challenge Health Insurers. A.M. Best. Jan InterStudy Competitive Edge. InterStudy Publications, Woolhander S, Campbell T, Himmelstein D: Costs of Health Care Administration in the United States and Canada. NEJM 349:8, Office of the Secretary, HHS. Health Insurance Reform: Standards for Electronic Transactions Federal Register: Aug. 17, 2000 (Volume 65, Number 160) 45 CFR Parts 160 and 162, Aug. 17, Centers for Medicare and Medicaid Services. HIPAA Frequently Asked Question #14s. What health care transactions are required to use the standards under HIPAA? CMS, Dec. 9, Available at: 7. Office of the Secretary, HHS, Workgroup for Electronic Data Interchange. Appendix 9: Financial Implications. Technical Advisory Group White Paper. WEDI, Oct Pizzo SP:The Napkin Network. Baseline, Jan./Feb Glaser JP, DeBor G, Stuntz L: The New England healthcare EDI network. Journal of Healthcare Information Management 17(4):42 50, Utah Health Information Network. HIPAA Cost Tool. UHIN Dec Computer Sciences Corporation. HIPAA Provider ROI Model. CSC, Sep. 25, Young J: An ROI Model for HIPAA Transactions. Gartner Group, Dec Faulker and Gray. Health Data Directory, Centers for Medicare & Medicaid Services. Internal Medicare Claims Processing Transaction Data. CMS, Centers for Disease Control and Prevention. Health, United States,Table 83. CDC, American Hospital Association. Hospital Statistics, AHA, Utah Health Information Network, PriceWaterhouseCoopers, HealthCast 2010, E-Connectivity Producing Measureable Results. PWC, Nov Workgroup for Electronic Data Interchange, CITL Expert Panel, Lazarus SS: HIPAA Tips for the physician office. Journal of AHIMA, Feb Computer Sciences Corporation, Utah Health Information Network, CITL Expert Panel, Faulker and Gray, Workgroup for Electronic Data Interchange, Office of the Secretary, HHS, Woolhander, The Value of Healthcare Information Exchange and Interoperability

97 30. CITL internal analysis, Centers for Medicare & Medicaid Services. An Overview of the U.S. Healthcare System. CMS, Accelerated Receivables Management. Industry Newsletter. Accelerated Receivables Management, LTD. Winter/ Spring 2000/ Glaser, Health Management Technology. Paperless Cure. Health Management Technology, Jul Litow ME, Muller SV: RealMed: Impact of a Real-Time Resolution Claim Processing System on Insurers. Milliman & Robertson, Inc. Jan Chapter 8: Benefit of Interoperability between Providers and Payers 89

98 Table 8-1 HIPAA AS Standard Transactions and Code Sets HIPAA Transactions Health Care Claims or Equivalent Encounter Information 837 Standard ANSI ASC X.12N Eligibility Inquiry and Response 270, 271 Health Care Claims Attachment* 275 Referral Authorization and Certification 278 Health Care Claim Status Inquiry and Response 276, 277 Enrollment and Disenrollment in a Health Plan 834 Health Care Payment and Remittance Advice 835 Health Plan Premium Payments 820 Coordination of Benefits 837 First Report of Injury* 148 HIPAA Code Sets International Classification of Diseases, 9th Edition, Clinical Modification, Volumes 1 and 2 International Classification of Diseases, 9th Edition, Clinical Modification, Volume 3 Procedures National Drug Codes Code on Dental Procedures and Nomenclature Health Care Financing Administration Common Procedure Coding System Current Procedural Terminology, 4th Edition ICD-9 ICD-9 NDC CDT HCPCS CPT-4 *Standards for Claims Attachments and First Report of Injury have been defined but not yet adopted The Value of Healthcare Information Exchange and Interoperability

99 Sources of Provider-Payer Interoperability Benefit by Transaction Type Switching from manual Decreased claim rejections to electronic transaction from electronic transactions Eligibility X X Claims submission X X Claims status inquiry X Claims attachments X Remittance advice X Referrals/Preauthorizations X X Coordination of benefits X Table 8-2 Provider-Payer Transaction Volumes per Group and Associated Savings (Annual) Number of transactions (annual) $ savings Small Medium Large % transactions per Group Group Group electronic transaction Eligibility 1,212 2,424 6,061 5% $2.99 Claims submission 14,700 29,400 73,510 64% $1.55 Claims status inquiry 1,856 3,712 9,280 5% $4.71 Claims attachments 2,205 4,410 11,030 0% $10.21 Remittance advice 3,675 7,350 18,380 2% $4.61 Referrals/ 2% $4.76 Preauthorizations $1.19 Coordination of benefits 3,161 6,321 15, %* $3.97 Table 8-3 *0% commercial; 80% Medicare and Medicaid. Rejected Claims Distributions and Avoidances of Rejected Claims % of rejected claims initially % of initially rejected claims rejected due to: avoided through HIEI Level 4: Eligibility 35% (poor eligibility data) 25% Referrals/Preauthorizations 27% (lack of referral or 25% preauthorization) All other reasons 38% (e.g., poor 9% demographic data) Table 8-4 Chapter 8: Benefit of Interoperability between Providers and Payers 91

100 Table 8-5 Provider-Payer Transaction Volumes per Hospital (Annual) Small Medium Large Jumbo % transactions Hospital Hospital Hospital Hospital electronic Eligibility 9,810 26,870 66, ,000 5% Claims submission 25,110 65, , ,000 91% Claims status inquiry 3,170 8,293 21,230 44,560 5% Claims attachments 3,767 9,853 25,230 52,940 0% Remittance advice 2,511 6,569 16,820 35,300 62% Referrals/Preauthorizations 2,060 6,602 16,010 29,730 2% Coordination of benefits 5,399 14,120 36,160 75, %* *0% commercial, 80% Medicare and Medicaid Table 8-6 Transaction Volume by Payer Type (Annual) Commercial Medicare Medicaid Eligibility Claims submission 268 1,073 1,108 Claims status inquiry Claims attachments Remittance advice Referrals/Preauthorizations Coordination of benefits in millions 92 The Value of Healthcare Information Exchange and Interoperability

101 Percent of Transaction Volumes Conducted Electronically by Payer Type Table 8-7 Commercial Medicare Medicaid Eligibility 5% Claims submission 43% (office) 84% (professional) 85% (hospital) 98% (institutional) Claims status inquiry 5% Claims attachments 0% Remittance advice 2% (professional) 62% (institutional) Referrals/Preauthorizations 2% Coordination of benefits 0% 80% Payer Cost Savings per Transaction by Payer Type Commercial Medicare Medicaid Eligibility $3.50 Claims submission $4.76 $5.54 (professional) $5.42 (institutional) Claims status inquiry $3.52 Claims attachments $11.39 Remittance advice $0.59 Referrals/ Preauthorizations $4.76 (referral to physician) $.89 (preauthorization ED visit and admission) Coordination of benefits $9.71 $10.90 (professional) $10.71 (institutional) Table 8-8 Chapter 8: Benefit of Interoperability between Providers and Payers 93

102 Table 8-9 Sensitivity Analysis High Low High Low Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Claim Attachment Savings $16.5 $23.7 $3.58 $ % 18% Claim Attachment Volume $16.5 $23.7 $3.58 $ % 18% Remittance Advice Volume $19.3 $22.5 $0.79 $2.37 4% 12% Claim Submission Savings $18.7 $21.5 $1.43 $1.44 7% 7% Remittance Advice Savings $18.9 $21.3 $1.23 $1.24 6% 6% in billions 94 The Value of Healthcare Information Exchange and Interoperability

103 Chapter 9: HIEI Costs CITL This chapter presents estimates of the costs of HIEI to individual providers and stakeholders, and to the nation.the analysis considers costs of internal clinical and administrative systems for providers, provider interfaces to stakeholders, and stakeholder interfaces to providers. Stakeholder system costs are not included. Cost components are described below and cost sources are summarized in Table 9-1. The HIEI model projects most costs using published data and CITL estimates of acquisition and annual costs. Acquisition costs are incurred at the outset of purchasing systems or interfaces, and include initial licenses, hardware, implementation, and training fees. Annual, or maintenance costs, include ongoing license fees, upgrades, and infrastructure costs. All national estimates were projected by the HIEI model, with the exception of provider-payer costs, which were taken directly from HIPAA s Final Impact Analysis. 1 The HIPAA data include costs to modify existing systems to comply with standard transactions and code sets, so these costs are not developed by the model or discussed in the cost component sections below.the national projections incorporate the HIPAA estimates, along with model-developed estimates for the rest of HIEI. Costs are projected over 10 years and assume that individual providers and stakeholders incur acquisition costs in year one, and annual costs in years 1 through 10.Twenty percent of providers and stakeholders install HIEI each year, ramping up acquisition costs by 20% per year beginning in year one (Table 9-2).The only exception is HIPAA cost, which is amortized over years one through three, in order to be consistent with the Final Impact Analysis. The model estimates costs for HIEI Levels 3 and 4, since Levels 1 and 2 (nonstandardized paper and fax-based data exchange) already exist in provider and stakeholder settings. HIEI System Components: Clinical Information Systems and Interfaces HIEI Levels 3 and 4 require providers to have broad and mature clinical information systems.while standardization may reduce Level 4 operating costs, both Levels require sophisticated systems, and this analysis makes the simplifying assumption that Level 3 and Level 4 systems are identical. Chapter 9: HIEI Costs 95

104 The Institute of Medicine defines minimal functional specifications for the electronic health records that would be required for HIEI Levels 3 and 4: 2 Health information and data Patient support Results management Administrative processes Order entry/management Reporting & population health Decision support management Electronic communication and connectivity Relatively few providers have implemented such systems, 3 and this analysis incorporates costs for new systems for all providers, rather than estimates of costs to update legacy systems. Interoperability also requires interfaces. An interface is a set of standards or protocols that enable two disparate systems or applications to share data and/or functionality. For instance, the Internet s Common Gateway Interface (CGI) specifies how to connect external applications with information servers to share data over the Internet. 4 For purposes of HIEI, CITL includes the cost of interface engine software, any license fees, and developer time needed to map codes to achieve interoperability. Some of the data content standards necessary for Level 4 interoperability are being made freely available. For example, the Department of Health and Human Services license of SNOMED effectively places this standard in the public domain. 5 System Component Costs Office clinical system costs are taken from CITL s cost model for Advanced ACPOE systems, which include a robust outpatient electronic health record (EHR), sophisticated order entry, and decision support. 6 Costs include software, hardware, an EHR license, training, implementation, interfaces to internal practice management systems, maintenance and opportunity costs.the ACPOE model scales according to the number of clinicians in an adopting group, capturing the economies of scale inherent in larger practice settings.the total 10-year cost to the example medical offices is $826,000 in a 5-clinician group, $1 million in a 10-clinician group, and $1.6 million in a 25- clinician group (Table 9-3). Hospital clinical system costs are drawn from Birkmeyer s cost estimates for new hospital clinical information systems with CPOE. 7 Based on vendor estimates, Birkmeyer reports higher and lower bound per-bed costs for implementing and maintaining these systems in typical 200- and 1,000-bed hospitals. CITL averaged the higher per-bed estimates to get acquisition costs of $17,500 per bed, and annual costs of $1,910 per bed, 96 The Value of Healthcare Information Exchange and Interoperability

105 summarized in Table 9-4.The analysis assumes that hospital outpatient clinical systems are an extension of inpatient systems, at no additional cost. Interface cost estimates require two inputs: the cost per interface, and the number of interfaces required. CITL found no published data on interface costs and developed estimates internally, setting start-up (purchase and implementation) costs for clinician offices at $20,000 per interface, and for hospitals at $50,000 per interface.annual maintenance is 17.5% of start-up costs, beginning in year one. For HIEI Level 4, providers need one interface for each type of stakeholder, reflecting the true effects of standardization. Even if a hospital does business with several external labs, for example, it needs only one lab interface, as all labs use the same standards and vocabularies. Each provider, then, needs five interfaces (to labs, pharmacies, radiology centers, public health departments, and other providers) for Level 4 interoperability. At Level 3 interoperability, however, each lab (and pharmacy and radiology provider) uses a different vocabulary, and the hospital must maintain an interface for each. CITL estimated the range of interfaces required. Providers interact with a single local public health department, requiring one interface. Referring and consulting clinicians would likely share nonstandardized data through a secure Web communications portal or platform, requiring one interface. In the model, provider Level 3 interface requirements range from 8 for a small group practice, to 20 for a jumbo hospital. Interface requirements are summarized in Table 9-5, with the estimated range and the midpoint used to calculate costs. Stakeholder interface cost estimates require the same cost and quantity inputs. With no readily available data on costs, CITL again developed internal estimates, setting start-up (purchase and implementation) costs at $50,000 per interface and maintenance at 17.5% of start-up costs beginning in year one. In general, the model assumes one interface per stakeholder. Providers would be responsible for interfacing to the stakeholders with whom they interact, obviating the need for stakeholders to support multiple interfaces into their systems whether standardized or not. CITL recognizes that large organizations like integrated delivery networks might, as a condition of business, persuade regional labs and imaging centers to build dedicated interfaces for the provider s systems.the model ignores this real-world circumstance. The U.S. public health system is an exception to the one-interface rule. The Expert Panel thinks it likely that public health departments would need separate interfaces for different types of providers.the analysis assumes one interface for hospitals, and one for clinician offices. Figure 9-1 illustrates the configuration of interfaces in Level 3 and Level 4 interoperability for a small group practice. Chapter 9: HIEI Costs 97

106 Figure 9-1 Comparison of Level 3 and Level 4 Interface Requirements for a Small Group Practice National Cost Projection To calculate national costs of HIEI, the inputs described above were multiplied by the number of U.S. providers and stakeholders. Specific calculations are described below, and the national cost results are summarized in Figure 9-2.Year-by-year rollout period costs are presented in Tables 9-6 through Figure 9-2 National 10-Year Rollout and Annual Costs Level 3 Rollout Level 4 Rollout Level 3 Annual Level 4 Annual Clinician office system cost $163,000,000,000 $163,000,000,000 $9,080,000,000 $9,080,000,000 Hospital system cost $27,100,000,000 $27,100,000,000 $1,580,000,000 $1,580,000,000 Provider interface cost $124,000,000,000 $76,200,000,000 $9,040,000,000 $5,400,000,000 Stakeholder interface cost $6,410,000,000 $9,920,000,000 $467,000,000 $467,000,000 Total $320,000,000,000 $276,000,000,000 $20,200,000,000 $16,500,000,000 Office clinical system costs were multiplied by an internally developed distribution of group practices by size, described in Appendix 1. Hospital system costs were assigned to each of the 4,908 U.S. community hospitals. 8 Provider interface costs were calculated using the same physician and hospital counts. 98 The Value of Healthcare Information Exchange and Interoperability

107 Stakeholder interface costs were calculated using stakeholder-specific counts: 4,936 freestanding laboratories, 9 4,421 radiology centers, 10 and 43,615 pharmacies. 11 Both state and local public health departments would need interfaces.the analysis assumes that 50 states would adapt CDC-developed interfaces for local use, that all 868 local health departments in jurisdictions with populations of at least 50,000 would implement the interfaces, and that half of the 1,629 departments in areas with populations less than 50, would implement them. National stakeholder interface costs are summarized in Figure 9-3. National 10-Year Rollout and Annual Stakeholder Interface Costs Level 3 Rollout Level 4 Rollout Level 3 Annual Level 4 Annual Lab $592,000,000 $592,000,000 $43,200,000 $43,200,000 Radiology $531,000,000 $531,000,000 $38,700,000 $38,700,000 Pharmacy $5,230,000,000 $5,230,000,000 $382,000,000 $382,000,000 Public Health $50,400,000 $50,400,000 $3,680,000 $3,680,000 Payer $3,510,000,000 Unknown Total $6,410,000,000 $9,920,000,000 $467,000,000 $467,000,000 Figure 9-3 Payer-provider costs are based on the HIPAA Final Impact Analysis.To calculate provider costs, the HIEI model multiplied the number of physician groups and hospitals by HIPAA compliance cost estimates per group and per hospital. For payer costs, the model simply relied on the Analysis s total payer cost estimates to comply with HIPAA standard transactions. Unlike other stakeholder costs, however, provider-payer costs apply only to Level 4 interoperability, and the stakeholder cost difference between Levels 3 and 4 is solely attributable to HIPAA s applicability to Level 4. The HIEI model incorporates all the inputs and assumptions outlined above to calculate national costs, summarized in Figures 9-2 and 9-3.The difference between Level 3 and Level 4 is due to the greater number of interfaces required at Level 3 and represents the value of standardization from a cost perspective: $44 billion during the 10-year rollout, and $3.7 billion annually thereafter. The cost of developing standards was not included in the model. Sensitivity Analysis As shown in Figures 9-4 and 9-5, total costs are most sensitive to changes in office clinical system costs and provider interface costs. Detailed results are included in Tables 9-11 and Chapter 9: HIEI Costs 99

108 Figure 9-4 Sensitivity of 10-Year National Costs to 50% Change in Key Factors Outpatient system cost Provider interface cost Hospital system cost $176 $276 $376 in billions Stakeholder interface cost Figure 9-5 Sensitivity of Annual Costs to 50% Change in Key Factors Outpatient system cost Provider interface cost Hospital system cost $10.5 $16.5 $22.5 in billions Stakeholder interface cost Cost Model Limitations This provider-centric analysis does not project internal system costs for stakeholders, as data on these widely varied systems are not readily available. And, consistent with the benefits projections, it does not consider costs of connectivity between stakeholders, such as between pharmacies and payers. Many factors affect system costs, and the model does not address all of them. It assumes new systems for all providers, and some providers would update legacy systems. Such upgrades are unlikely to cost as much as new systems, though new systems have greater software licensing, implementation, and training costs, and would likely require new 100 The Value of Healthcare Information Exchange and Interoperability

109 hardware and much greater changes to provider workflow.the model does not account for costs or benefits of legacy data conversion, ongoing user support, or workflow re-engineering. It also ignores volume discounts, which would likely be part of a national rollout. It is difficult to estimate the number of Level 3 interfaces. Published studies often do not distinguish between internal and external interfaces. 13 Sources suggest that large hospitals may need as many as 50 to 80 interfaces to internal and external systems, as opposed to CITL s estimate of 17 to 20 interfaces to external systems for large and jumbo hospitals.to avoid the burden of maintaining multiple interfaces, smaller hospitals may be more likely to purchase vendor-supplied and therefore standardized systems.the number of stakeholder interfaces may also be different from those used in the analysis. The model assumes an interface for each of 4,936 laboratories, for example, ignoring the fact that a large chain would develop interfaces centrally for use across the enterprise. Given the variability of how interoperability might actually be realized through regional or local data sharing consortia, for instance the model may ignore important costs related to data aggregation, access control technologies, or costs of independent management. Different approaches to interoperability might achieve similar results at different costs. For example, systems relying on centralized databases would minimize the number of required interfaces, but they could require substantial resources to address data synchronization and scalability issues inherent in a model requiring redundant storage of stakeholders data in a central location. Such a model also requires a central authority to oversee access and to facilitate myriad legal and political issues, adding more cost. Today s networks often leverage the peer-to-peer communications infrastructure supplied by the internet, with direct connectivity between two parties and no need for a central data repository. Finally, the model assumes that all providers would buy the required systems and interfaces. The majority of smaller providers lack the capital, IT systems development staff, and clinical informatics expertise to develop systems internally. In real-world adoption scenarios, however, it is likely that large providers would develop or modify their own systems to meet Level 3 or Level 4 requirements. For office clinical systems, the analysis assumes that each office bears the cost of developing, encoding, and customizing a knowledge base. Development of public domain knowledge bases could decrease costs significantly, particularly for smaller sites. Further, many providers would finance systems and interface acquisition, raising costs slightly. Chapter 9: HIEI Costs 101

110 References 1. Standards for Electronic Transactions and Code Sets: Final Impact Analysis. Federal Register, Aug. 17, Committee on Data Standards for Patient Safety. Key Capabilities of an Electronic Health Record System. Institute of Medicine. National Academies of Sciences, Brailer DJ,Terasawa EL: Use and Adoption of Computer-based Patient Records in the United States: A Review and Update. California HealthCare Foundation, Oct The Common Gateway Interface. Available at: 5. SNOMED License Agreement. National Library of Medicine, National Institutes of Health, Department of Health and Human Services. Jun. 30, Available at: snomed_license.html. 6. Johnston D, Pan E, Walker J, Bates D, Middleton B: The Value of Computerized Provider Order Entry in Ambulatory Settings. The Center for Information Technology Leadership, Birkmeyer CM, Lee J, Bates DW, Birkmeyer JD: Will electronic order entry reduce health care costs? Eff Clin Pract 5:67 74, American Hospital Association. Hospital Statistics. AHA, Wolman DM, Kalfoglou AL, LeRoy L: Medicare Laboratory Payment Policy: Now and in the Future. National Academy Press, U.S. Census Bureau. Data from 1997 Economic Census. U.S. Department of Commerce, U.S. Census Bureau, The National Association of County and City Health Officials. Research Brief: Preliminary Results from the 1997 Profile of U.S. Local Health Departments. NACCHO, Sep Robert E. Nolan Company. Replacing ICD-9-CM with ICD-10-CM and ICD-10-PCS. Robert E. Nolan Company. Oct The Value of Healthcare Information Exchange and Interoperability

111 Source of Cost Estimates Start-up, Years 1 10 Annual, Years 11+ Clinical Admin Clinical Admin systems systems Interfaces systems systems Interfaces Hospitals Birkmeyer Birkmeyer CITL estimate $50k HIPAA Medical CITL CITL estimate CITL Offices ACPOE $20k ACPOE none, CITL unknown Independent none, CITL estimate Laboratories n/a unknown $50k n/a Radiology Centers Pharmacies Public Health Departments Payers HIPAA estimate 17.5% of start-up none, unknown Table 9-1 Costs Incurred Annually with a Five-Year National Rollout National National Per entity Per entity acquisition annual acquisition annual cost cost cost cost Year 1 20% 20% 100% 100% Year 2 20% 40% 100% Year 3 20% 60% 100% Year 4 20% 80% 100% Year 5 20% 100% 100% Year 6 100% 100% Year 7 100% 100% Year 8 100% 100% Year 9 100% 100% Year % 100% Table 9-2 Chapter 9: HIEI Costs 103

112 Table 9-3 Office Clinical System Costs at Levels 3 and 4 Small Group Medium Group Large Group Acquisition cost $394,000 $453,000 $633,000 Annual cost $43,300 $57,400 $99,800 Total 10-year cost $826,000 $1,030,000 $1,630,000 Table 9-4 Hospital Clinical System Costs at Levels 3 and 4 Small Hospital Medium Hospital Large Hospital Jumbo Hospital Acquisition cost $558,000 $1,920,000 $4,870,000 $10,400,000 Annual cost $61,000 $210,000 $533,000 $1,140,000 Total 10-year cost $1,170,000 $4,010,000 $10,200,000 $21,800,000 Table 9-5 Number (Range) of Provider Interfaces Required at Level 3 Small Medium Large Small Medium Large Jumbo Group Group Group Hospital Hospital Hospital Hospital Provider laboratory (1 3) (2 4) (3 5) (2 4) (3 5) (4 6) (5 7) Provider radiology (1 3) (2 4) (3 5) (2 4) (3 5) (4 6) (5 7) Provider pharmacy (1 3) (2 4) (3 5) (2 4) (3 5) (4 6) (5 7) Providerpublic health Providerprovider Total (5 11) (8 14) (11 17) (8 14) (11 17) (14 20) (17 23) 104 The Value of Healthcare Information Exchange and Interoperability

113 Total 10-Year National Office Clinical System Costs at Levels 3 and 4 Year Level 3 Level 4 1 $19,900,000,000 $19,900,000,000 2 $21,700,000,000 $21,700,000,000 3 $23,500,000,000 $23,500,000,000 4 $25,300,000,000 $25,300,000,000 5 $27,100,000,000 $27,100,000,000 6 $9,080,000,000 $9,080,000,000 7 $9,080,000,000 $9,080,000,000 8 $9,080,000,000 $9,080,000,000 9 $9,080,000,000 $9,080,000, $9,080,000,000 $9,080,000,000 Total $163,000,000,000 $163,000,000,000 Table 9-6 Total 10-Year National Hospital System Costs at Levels 3 and 4 Year Level 3 Level 4 1 $3,200,000,000 $3,200,000,000 2 $3,520,000,000 $3,520,000,000 3 $3,830,000,000 $3,830,000,000 4 $4,150,000,000 $4,150,000,000 5 $4,470,000,000 $4,470,000,000 6 $1,580,000,000 $1,580,000,000 7 $1,580,000,000 $1,580,000,000 8 $1,580,000,000 $1,580,000,000 9 $1,580,000,000 $1,580,000, $1,580,000,000 $1,580,000,000 Total $27,100,000,000 $27,100,000,000 Table 9-7 Chapter 9: HIEI Costs 105

114 Table 9-8 Total National 10-Year Provider Interface Costs at Levels 3 and 4 Year Level 3 Level 4 1 $12,100,000,000 $7,860,000,000 2 $13,900,000,000 $8,940,000,000 3 $15,800,000,000 $9,980,000,000 4 $17,600,000,000 $10,400,000,000 5 $19,400,000,000 $11,500,000,000 6 $9,040,000,000 $5,380,000,000 7 $9,040,000,000 $5,380,000,000 8 $9,040,000,000 $5,380,000,000 9 $9,040,000,000 $5,380,000, $9,040,000,000 $5,380,000,000 Total $124,000,000,000 $75,700,000,000 Table 9-9 Total National 10-Year Stakeholder Interface Costs at Levels 3 and 4 Year Level 3 Level 4 1 $627,000,000 $1,820,000,000 2 $721,000,000 $1,920,000,000 3 $814,000,000 $1,940,000,000 4 $908,000,000 $908,000,000 5 $1,000,000,000 $1,000,000,000 6 $467,000,000 $467,000,000 7 $467,000,000 $467,000,000 8 $467,000,000 $467,000,000 9 $467,000,000 $467,000, $467,000,000 $467,000,000 Total $6,410,000,000 $9,920,000, The Value of Healthcare Information Exchange and Interoperability

115 Total 10-Year National Cost at Levels 3 and 4 Year Level 3 Level 4 1 $35,800,000,000 $32,900,000,000 2 $39,900,000,000 $36,200,000,000 3 $43,900,000,000 $39,400,000,000 4 $47,900,000,000 $40,800,000,000 5 $52,000,000,000 $44,100,000,000 6 $20,200,000,000 $16,500,000,000 7 $20,200,000,000 $16,500,000,000 8 $20,200,000,000 $16,500,000,000 9 $20,200,000,000 $16,500,000, $20,200,000,000 $16,500,000,000 Total $320,000,000,000 $276,000,000,000 Table 9-10 Sensitivity Analysis on 10-Year Total National HIEI Costs Low High Low High Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Outpatient system cost $206 $346 $70.0 $ % 25% Provider interface cost $243 $308 $32.7 $ % 12% Hospital system cost $264 $287 $11.6 $11.7 4% 4% Stakeholder interface cost $271 $280 $4.22 $4.30 2% 2% in billions Table 9-11 Low High Low High Net Net Low High Percent Percent Variable Benefit Benefit Delta Delta Impact Impact Outpatient system cost $12.0 $21.1 $4.5 $4.5 22% 27% Provider interface cost $13.8 $19.2 $2.7 $2.7 14% 16% Hospital system cost $15.7 $17.3 $0.8 $0.8 5% 5% Stakeholder interface cost $16.3 $16.7 $0.2 $0.2 1% 1% in billions Sensitivity Analysis on Annual HIEI Costs Table 9-12 Chapter 9: HIEI Costs 107

116 108 The Value of Healthcare Information Exchange and Interoperability

117 Chapter 10: Net Value of HIEI CITL Until now, this report has documented benefits and costs separately. To assess the net value of HIEI, this chapter combines the benefits from Chapters 3 8 and the costs from Chapter 9. It presents both net value during implementation of HIEI, in a ten-year national rollout scenario, and net value after full implementation.as is the case throughout this report, results are reported to three significant digits. Rounded numbers may cause calculations to look inaccurate. The ten-year rollout assigns annual cost and benefit using a set of assumptions. As described in Chapter 9, 20% of providers and stakeholders implement HIEI each year and each incurs acquisition costs in the first year and annual costs beginning the same year. This scenario accounts for a realistic Level 3/Level 4 rollout, with organizations preparing to participate in interoperability at different times. Each user (providers and stakeholders) reaps 50% of total HIEI benefit in its first year, and benefit climbs 10% per year until it reaches 100% in the sixth year. By year 10, all participants reach 100% of their benefit potential.table 10-1 includes a benefit realization schedule. Provider Net Value during HIEI Rollout Per Provider Group or Hospital Providers with the highest volume of data exchanges with external stakeholders stand to save the most from interoperability. Thus, it is not surprising that large groups and jumbo hospitals would realize the most significant net value. Across the board over a ten-year period, the value achieved at Level 4 is significantly higher than the value at Level 3. Cumulatively, a small hospital would realize a ten-year net return of $2.18 million at Level 4, and a loss of $0.764 million at Level 3 over 10 years. A small group would realize $4.79 million and $9.02 million at Levels 3 and 4 respectively, almost $1 million per physician at Level 4. A jumbo hospital and large group realize $5.87/$45.6 million and $27.4/$47.9 million respectively at Levels 3/4 (Figures 10-1 and 10-2). Chapter 10: Net Value of HIEI 109

118 Figure 10-1 Cumulative Net Value per Group or Hospital at Level 3 (during HIEI Rollout) Small Group Medium Group Large Group Small Hospital Medium Hospital Large Hospital Jumbo Hospital $45 $35 $25 $15 $5 $(5) $(15) Years in millions Figure 10-2 Cumulative Net Value per Group or Hospital at Level 4 (during HIEI Rollout) Small Group Medium Group Large Group Small Hospital Medium Hospital Large Hospital Jumbo Hospital $45 $35 $25 $15 $5 $(5) $(15) Years in millions 110 The Value of Healthcare Information Exchange and Interoperability

119 At Level 4, small, medium and large group practices have a positive net value in the first year. In contrast, it is not until year five that all hospitals experience positive net returns. At Level 3, all group practices are positive by year two. However, only large and jumbo hospitals reach positive return, and not until years 10 and 8 respectively. Due to the larger proportion of external data exchanges, group practices experience greater value from interoperability. Hospitals are more self-contained and have less need to exchange data with external stakeholders. However, they benefit from internal interoperability, or integration, not included in this value assessment. On the cost side, hospitals have higher costs because they require more interfaces.table 10-2 shows annual net value for each example provider. Provider Net Value during HIEI Rollout All Providers Combined Which relationships produce the most cumulative net value to providers? For providers as a group, the most value comes from connecting to labs and other providers, $82.6 billion and $71.3 billion respectively over 10 years at Level 4 (Figure 10-3). Connections to payers and radiology centers follow, with providers realizing $64.5 billion and $49.6 billion respectively over 10 years. Pharmacy and public health interoperability lead to losses, costing providers $8.01 billion and $14.1 billion respectively during the rollout period. However, both of these relationships are likely to accrue benefits not captured here, such as fewer medication errors, better immunization compliance, and optimal antibiotic usage. Level 3 results follow the same trend, except that payers do not participate. Cumulative Net Value to All Providers from Levels 3 and 4 (during HIEI Rollout) Pharmacy Public Health Radiology Payer Laboratory Other Providers Figure 10-3 $100 $80 $60 $40 $20 $0 $20 $40 Level 3 Level 4 in billions (provider system cost of $190 billion excluded) Chapter 10: Net Value of HIEI 111

120 Total ten-year provider value is $36.7 billion at Level 3 and $246 billion at Level 4,excluding provider system cost. CITL did not attempt to allocate these costs to stakeholder connections. The ten-year cost for installing and maintaining the systems necessary to participate in interoperability for all providers is $190 billion, as detailed in Chapter 9. Subtracting $190 billion from these results has a significant impact on provider value, decreasing it to -$153 billion and $55.8 billion at Levels 3 and 4 respectively. Stakeholder Net Value during HIEI Rollout All stakeholders achieve positive returns in the first year at Level 4, with the exception of pharmacies, which reach positive returns in year six (Figure 10-4). Figure 10-4 Cumulative National Net Value by Stakeholder at Level 4 (during HIEI Rollout) Payer Pharmacy Laboratory Radiology Public Health $190 $150 $110 $70 $30 $(10) Years in billions Due to the large number of pharmacies, the total interface cost is high, and the benefit is relatively low. In total, the net return to all pharmacies in the U.S. is $5.62 billion over the ten-year implementation period. Payer net value reaches $137 billion over 10 years, followed by lab at $85.0 billion, and radiology at $52.8 billion. The public health system achieves $0.582 billion net return over 10 years.ten-year benefit and cost for each stakeholder is included in Tables 10-3 and As noted in Chapters 3 and 4, Laboratory and Radiology, payers receive benefit from providers connecting to labs and radiology centers.this is due to the fact that avoided duplicative tests benefit the parties that pay for them: providers and payers. Since outpatient providers generate 11.6% of revenue from capitated contracts, providers would realize this percent of the benefit, while payers realize the remaining 88.4%. At Level 3, payers save $19.9 billion over 10 years from such avoided tests, even though payers do 112 The Value of Healthcare Information Exchange and Interoperability

121 not participate in Level 3 HIEI.At Level 4, they save $76.7 billion, included in the $137 billion benefit above. As a group, the financial incentive for radiology centers, payers, and independent labs to participate in Level 3 or 4 interoperability, and for providers to participate in Level 4, is clear. Under the assumptions of this analysis, however, pharmacies and public health departments have little financial incentive to participate. Furthermore, providers lose money from pharmacy and public health interoperability if they are considered in isolation, and therefore have no financial incentive to fund these connections. National Net Value during HIEI Rollout In CITL s implementation scenario, the nation would lose $34.2 billion at Level 3, and gain $337 billion at Level 4, during the ten-year rollout period. Level 3 is both more costly and results in significantly less benefit. Standardization at Level 4 allows for fewer interfaces and up to 95.0% realization of benefit, resulting in a large positive cumulative return.the nation would not experience positive net value from Level 3 at any point over 10 years, compared to year 6 at Level 4. It would not be until year 12 that Level 3 would reach a positive cumulative value. Figures 10-5 and 10-6 present annual benefit and cost during implementation, and Figure 10-7 graphs cumulative value.the underlying numbers are included in Tables 10-5 and For national projections, the model ramps up HIEI adoption and usage over 10 years based on a set of assumptions. The model assumes that 20% of users (providers and stakeholders) are set up to participate in each of the first five years, until 100% of participants are ready in year six. Due to this staggered implementation, when a user is ready to exchange data electronically, all the necessary connections may not exist. The user is then forced to exchange data at a lower level.to account for this, the HIEI analysis assumes that the 20% of users who adopt in year one will realize only 50% of the total possible value in year one. Benefit realization increases 10% in each of the following years, until 100% benefit is reached. The same 50%-60%-70%-80%-90%-100% ramp-up of value realization is applied to the users who adopt in years two, three, four and five (Table 10-1). Chapter 10: Net Value of HIEI 113

122 Figure 10-5 National Cost and Benefit at Level 3 (during HIEI Rollout) $400 Benefit $300 Cost $200 $100 $0 $100 $200 $300 $ Years in billions Figure 10-6 National Cost and Benefit at Level 4 (during HIEI Rollout) $700 $600 $500 $400 Benefit Cost $300 $200 $100 $0 $100 $200 $300 $ Years in billions 114 The Value of Healthcare Information Exchange and Interoperability

123 $400 National Cumulative Net Value (during HIEI Rollout) Figure 10-7 $300 $200 $100 $0 $100 $ Years Level 1 Level 2 Level 3 Level 4 in billions Sensitivity Analysis (Rollout) The tornado diagram in Figure 10-8 reveals to which variables the analysis is most sensitive, from a ten-year cumulative perspective at Level 4. The baseline is $337 billion. The results are most sensitive to the average cost of lab and radiology tests. Increasing average lab test cost by 50%, from $40 to $60, would result in net value of $513 billion, a 52% increase. Increasing radiology test cost by 50%, from $240 to $360, would result in $446 billion return, a 32% increase. A complete list of variables and the associated impacts can be found in Table Chapter 10: Net Value of HIEI 115

124 Figure 10-8 Sensitivity Analysis for 10-Year Level 4 Net Value (during HIEI Rollout) Average test cost (lab) Average test cost (rad) Laboratory $ per person-yr Radiology $ per person-yr Outpatient system cost Percent of esoteric tests (lab) Number of chart requests (provider) Provider interface cost Percent of esoteric tests (rad) Pages per chart (provider) Percent of studies redundant (rad) Claims attachment volume (payer) Claims attachment savings (payer) Percent of studies requiring film (rad) Remittance advice volume (payer) Inpatient system cost Claims submission savings (payer) Remittance advice savings (payer) Percent of studies redundant (lab) Phone minutes per prescription (pharmacy) Pharmacist hourly salary (pharmacy) Stakeholder interface cost $187 $337 $537 in billions Net Value of Fully Implemented HIEI At three levels of full implementation, the U.S. will realize billions of dollars annually in net value: Level 2 Benefit Cost Net Value $ 21.6 billion $ 00.0 billion $ 21.6 billion Level 3 Benefit Cost Net Value $ 44.0 billion $ 20.2 billion $ 23.9 billion Level 4 Benefit Cost Net Value $ 94.3 billion $ 16.5 billion $ 77.8 billion 116 The Value of Healthcare Information Exchange and Interoperability

125 Providers should logically gain the most in this model, due to the fact that they are connecting to all other groups. And this holds true, even though they are bearing system costs, unlike the stakeholders included in the model. Level 4 produces the best returns, at $33.5 billion annually. Level 2, which transfers information using standard office fax systems at no additional cost, is second best, with $10.2 billion in annual net value. Level 3, with the cost of systems plus multiple interfaces, returns the lowest annual value, $5.02 billion. Figure 10-9 compares benefits and costs for providers at each level. National Providers Benefit and Cost (Annual) Figure 10-9 $60 $40 $20 $0 $20 $40 Level 2 Level 3 Level 4 $60 in billions Level 4 also produces the best returns for the example group practices and hospitals, shown in Figure Benefit and cost figures are included in Table Chapter 10: Net Value of HIEI 117

126 Figure Net Value per Group or Hospital (Annual) $8 $7 $6 Level 2 Level 3 Level 4 $5 $4 $3 $2 $1 $0 Small Group Medium Group Large Group Small Hospital Medium Hospital Large Hospital Jumbo Hospital in millions Payers are undoubtedly the second biggest winners in Level 4 interoperability, reaping an annual benefit of $21.6 billion.without annual cost figures (HIPAA assigns all costs to start-up, with no on-going cost), CITL could not calculate annual net value. Even though payers do not participate in Level 2 or Level 3 interoperability, they enjoy passive returns at those levels from avoided laboratory and radiology tests.avoided tests also account for 55% of their Level 4 benefit (Figure 10-11). Table 10-9 includes detailed figures. Figure Source of Payer Benefit (Annual) $25 Avoided lab tests Avoided radiology tests Provider-Payer HIEI $20 $15 $10 $5 $0 Level 1 Level 2 Level 3 in millions 118 The Value of Healthcare Information Exchange and Interoperability

127 Independent laboratories and radiology centers realize $13.1 billion and $8.17 billion in annual net returns, respectively. In this model, their only costs are for interfaces. National interoperability may require additional investment in systems, and those costs are not included here. Net value is shown in Figure 10-12, and the underlying benefits and costs are included in Table National Net Return for Laboratories and Radiology Centers (Annual) $14 $12 $10 $8 $6 $4 $2 $0 Laboratory Radiology Level 2 Level 3 Level 4 Figure in billions Pharmacies earn nearly the same returns at Levels 2, 3, and 4, about $1.29 billion annually. These financial returns are low compared to net returns for other stakeholders, reflecting the fact that HIEI saves providers and pharmacies relatively little time. Returns could be negative once system costs are included.while not considered here, CITL believes that additional returns will come from pharmacy-payer interoperability. Though CITL could not find quantitative evidence to support projections, patients will gain important clinical value from reduced ADEs. National figures are graphed in Figure and included in Table Public health departments also earn relatively modest returns in this model, about $93.6 million annually with Level 4 HIEI. This financial value is derived from improvements in case reporting and vital statistics, a very small part of public health activities.the most significant impact of public health interoperability will almost certainly be in biosurveillance and earlier recognition of disease trends, but there is little experiential evidence and CITL did not build national projections related to these areas.the model s net return is graphed in Figure 10-13, and the cost-benefit breakdown is included in Table Chapter 10: Net Value of HIEI 119

128 Figure Net Return for Pharmacies and Public Health Departments (Annual) $1.5 $1.0 $0.5 Level 2 Level 3 Level 4 $0.0 in millions Pharmacy Public Health Summary of Level 4 Net Value Level 4 net value for all participants is summarized in Figure The sum of the values shown is $88.5 billion. Providers annual system maintenance costs of $10.5 billion were not allocated to the illustrated transactions.when they are subtracted, the total net value is $77.8 billion. Figure Level 4 Net Value (Annual) N/A Other Provider $1.29B Pharmacy $8.17B Radiology $8.04B $8.82B $9.84B $12.2B $10.3B Provider -$0.037B $13.9B -$0.980B $21.6B Payer $3.76B $13.1B Laboratory $0.094B Public Health 120 The Value of Healthcare Information Exchange and Interoperability

129 Sensitivity Analysis (Steady State) Figure illustrates the sensitivity of annual net value to model inputs. Once again, national value is most sensitive to laboratory and radiology costs. Table includes detailed amounts. Sensitivity Analysis for Level 4 Net Value (Annual) Average test cost (lab) Average test cost (rad) Laboratory $ per person-yr Radiology $ per person-yr Percent of esoteric tests (lab) Number of chart requests (provider) Percent of esoteric tests (rad) Outpatient system cost Pages per chart (provider) Percent of studies redundant (rad) Claims attachment volume (payer) Claims attachment savings (payer) Percent of studies requiring film (rad) Provider interface cost Remittance advice volume (payer) Claims submission savings (payer) Remittance advice savings (payer) Percent of studies redundant (lab) Phone minutes per prescription (pharmacy) Pharmacist hourly salary (pharmacy) Inpatient system cost Clinician hourly salary (pharmacy) Figure in billions $58 $78 $108 Conclusions This net value analysis reveals three important results. First, Level 3 interoperability does not break even in 10 years. Though some providers and stakeholders achieve positive returns, the national as a whole loses value during the implementation period. Level 3 reaches breakeven in year 12, and then produces less than one-third of Level 4 s value annually from that point. Second, all provider organizations realize positive value from Level 4 interoperability, with group practices realizing impressive returns relative to their size, compared to hospitals. Third, both providers and stakeholders have financial incentives to participate in provider-lab, provider-radiology, provider-payer and provider-provider interoperability. Provider-pharmacy and provider-public health interoperability produce negative net Chapter 10: Net Value of HIEI 121

130 return to providers, and minimal value to stakeholders. But, these relationships are likely to produce significant financial, clinical, and organizational benefits that cannot yet be quantified. Of course, projected benefits from more efficient administrative processes assume that providers and stakeholders reduce employees as they increase electronic transaction values.within any given organization, this may not happen, as employees may be assigned other tasks as processes are automated.thus, the benefit may not be realized in hard dollars and instead may result in higher productivity or improved service quality. 122 The Value of Healthcare Information Exchange and Interoperability

131 Benefit Realization Schedule Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Table 10-1 Rollout (at 20% new users per year, cumulative % of potential users who have adopted) Technology benefits to individual users (% of the technology s benefit actually accruing to the individual user in each ensuing year of use) Individual technology benefit rollout sequence 1st 20% of users (start Yr 1) 2nd 20% of users (start Yr 2) 3rd 20% of users (start Yr 3) 4th 20% of users (start Yr 4) 5th 20% of users (start Yr 5) Technology benefits to all users combined (individual benefit x rollout %) 1st 20% of users 2nd 20% of users 3rd 20% of users 4th 20% of users 5th 20% of users Total US 20% 40% 60% 80% 100% 100% 100% 100% 100% 100% 50% 60% 70% 80% 90% 100% 100% 100% 100% 100% 50% 60% 70% 80% 90% 100% 100% 100% 100% 100% 50% 60% 70% 80% 90% 100% 100% 100% 100% 50% 60% 70% 80% 90% 100% 100% 100% 50% 60% 70% 80% 90% 100% 100% 50% 60% 70% 80% 90% 100% 10% 12% 14% 16% 18% 20% 20% 20% 20% 20% 10% 12% 14% 16% 18% 20% 20% 20% 20% 10% 12% 14% 16% 18% 20% 20% 20% 10% 12% 14% 16% 18% 20% 20% 10% 12% 14% 16% 18% 20% 10% 22% 36% 52% 70% 80% 88% 94% 98% 100% Annual Net Return per Group or Hospital at Level 4 Small Medium Large Small Medium Large Jumbo Year Group Group Group Hospital Hospital Hospital Hospital 1 $0.063 $0.609 $2.20 $0.770 $2.04 $4.26 $ $0.652 $1.35 $3.39 $0.187 $0.502 $1.46 $ $0.771 $1.59 $3.98 $0.236 $0.629 $1.80 $ $0.889 $1.83 $4.56 $0.284 $0.754 $2.14 $ $1.0 $2.06 $5.14 $0.333 $0.880 $2.48 $6.05 Annual after 5th yr $1.13 $2.30 $5.73 $0.382 $1.01 $2.82 $6.87 Table 10-2 in millions Chapter 10: Net Value of HIEI 123

132 Table 10-3 Total 10-Year Return by Stakeholder Group at Levels 3 and 4 Public Payer Pharmacy Laboratory Radiology Health Level 3 Benefit $19.9 $10.7 $55.2 $39.4 $0.379 Level 3 Cost $0 $5.23 $0.592 $0.531 $0.050 Level 3 Net $19.9 $5.44 $54.6 $38.8 $0.329 Level 4 Benefit $141 $10.9 $85.6 $53.4 $0.632 Level 4 Cost $3.51 $5.23 $0.592 $0.531 $0.050 Level 4 Net $137 $5.62 $85.0 $52.8 $0.582 in billions Table 10-4 Annual Net Return by Stakeholder Group at Level 4 Public Year Payer Pharmacy Laboratory Radiology Health 1 $0.970 $0.346 $1.26 $0.769 $ $3.57 $0.221 $2.83 $1.75 $ $6.67 $0.064 $4.67 $2.89 $ $11.3 $0.127 $6.77 $4.19 $ $15.2 $0.351 $9.12 $5.66 $ $17.3 $0.954 $10.5 $6.53 $ $19.1 $1.09 $11.6 $7.19 $ $20.4 $1.19 $12.3 $7.68 $ $21.2 $1.26 $12.9 $8.01 $ $21.6 $1.29 $13.1 $8.17 $0.094 in billions 124 The Value of Healthcare Information Exchange and Interoperability

133 Net Returns for National Adoption of Level 3 Interoperability Cumulative Year Install Cost Ongoing Cost Total Cost Benefits Annual Net Balance 1 $15.7 $20.2 $35.8 $4.40 $31.4 $ $19.7 $20.2 $39.9 $9.69 $30.2 $ $23.7 $20.2 $43.9 $15.9 $28.1 $ $27.8 $20.2 $47.9 $22.9 $25.0 $115 5 $31.8 $20.2 $52.0 $30.8 $21.2 $136 6 $0 $20.2 $20.2 $35.3 $15.1 $121 7 $0 $20.2 $20.2 $38.8 $18.6 $102 8 $0 $20.2 $20.2 $41.3 $21.2 $ $0 $20.2 $20.2 $43.1 $23.0 $ $0 $20.2 $20.2 $44.0 $23.9 $34.2 Table 10-5 in billions Net Returns for National Adoption of Level 4 Interoperability Cumulative Year Install Cost Ongoing Cost Total Cost Benefits Annual Net Balance 1 $16.4 $16.5 $32.9 $9.43 $23.5 $ $19.7 $16.5 $36.2 $20.7 $15.4 $ $22.9 $16.5 $39.4 $34.0 $5.41 $ $24.3 $16.5 $40.8 $49.0 $8.20 $ $27.6 $16.5 $44.1 $66.0 $21.9 $ $0 $16.5 $16.5 $75.5 $58.9 $ $0 $16.5 $16.5 $83.0 $66.5 $111 8 $0 $16.5 $16.5 $88.6 $72.1 $183 9 $0 $16.5 $16.5 $92.5 $76.0 $ $0 $16.5 $16.5 $94.3 $77.8 $337 Table 10-6 in billions Chapter 10: Net Value of HIEI 125

134 Table 10-7 Sensitivity Analysis for 10-Year Level 4 Net Value (during HIEI Rollout) Low High Low High Net Net Low High Percent Percent Variable Value Value Delta Delta Impact Impact Average lab test cost $279 $513 $58.5 $176 17% 52% Average radiology test cost $301 $446 $36.2 $109 11% 32% Laboratory $ per person-yr $236 $439 $101 $101 30% 30% Radiology $ per person-yr $254 $420 $83.3 $ % 25% Outpatient system cost $257 $417 $79.8 $ % 24% Percent of esoteric tests (lab) $309 $378 $27.7 $40.7 8% 12% Number of chart requests $297 $377 $40.4 $ % 12% Provider interface cost $300 $374 $37.2 $ % 11% Percent of esoteric tests (radiology) $320 $367 $17.2 $29.6 5% 9% Pages per chart $308 $366 $28.8 $28.8 9% 9% Percent of studies redundant (radiology) $312 $362 $25.1 $25.1 7% 7% Claims attachment volume $313 $361 $24.0 $24.0 7% 7% Claims attachment savings $313 $361 $24.0 $24.0 7% 7% Percent of studies with film (radiology) $316 $358 $21.2 $21.2 6% 6% Remittance advice volume $332 $353 $5.29 $16.0 2% 5% Inpatient system cost $324 $350 $13.3 $13.2 4% 4% Claims submission savings $328 $347 $9.60 $9.60 3% 3% Remittance advice savings $329 $345 $8.23 $8.23 2% 2% Percent of studies redundant (lab) $330 $344 $7.34 $7.25 2% 2% Phone minutes per prescription $330 $344 $6.85 $6.85 2% 2% Pharmacy hourly salary $332 $342 $5.38 $5.29 2% 2% Stakeholder interface cost $332 $342 $4.90 $4.80 1% 1% Clinical hourly salary $334 $340 $3.33 $3.23 1% 1% Number of external referrals $335 $339 $1.76 $1.76 1% 1% Handwritten script call rate (pharmacy) $336 $338 $0.881 $ % 0% Minutes to complete a report (public health) $337 $338 $0.588 $ % 0% Percent of public health reports requiring manual handling $337 $337 $0.098 $ % 0% continued on next page 126 The Value of Healthcare Information Exchange and Interoperability

135 Sensitivity Analysis for 10-Year Level 4 Net Value (during HIEI Rollout) (continued) Low High Low High Net Net Low High Percent Percent Variable Value Value Delta Delta Impact Impact Number of public health departments with interfaces $337 $337 $0 $0 0% 0% Percent of cases reported by providers (public health) $337 $337 $0 $0 0% 0% Cost per electronic public health report $337 $337 $0 $0 0% 0% Table 10-7 in billions Level 2 Annual Return by Level per Group or Hospital after Implementation Small Medium Large Small Medium Large Jumbo Group Group Group Hospital Hospital Hospital Hospital Benefit $292,000 $584,000 $1,440,000 $101,000 $260,000 $703,000 $1,690,000 Cost $0 $0 $0 $0 $0 $0 $0 Net $292,000 $584,000 $1,440,000 $101,000 $260,000 $703,000 $1,690,000 Table 10-8 Level 3 Benefit $710,000 $1,420,000 $3,490,000 $226,000 $580,000 $1,530,000 $3,580,000 Cost $71,300 $95,800 $149,000 $157,000 $332,000 $682,000 $1,320,000 Net $639,000 $1,330,000 $3,340,000 $68,300 $248,000 $848,000 $2,270,000 Level 4 Benefit $1,190,000 $2,370,000 $5,850,000 $486,000 $1,260,000 $3,390,000 $8,040,000 Cost $60,800 $74,900 $117,000 $105,000 $253,000 $577,000 $1,180,000 Net $1,130,000 $2,300,000 $5,730,000 $381,000 $1,010,000 $2,810,000 $6,860,000 Chapter 10: Net Value of HIEI 127

136 Table 10-9 Total Annual Benefit to Payers by HIEI Level Payer Benefit from: Level 2 Level 3 Level 4 Provider-Lab $738,000,000 $1,090,000,000 $3,760,000,000 Provider-Radiology $1,590,000,000 $1,960,000,000 $8,040,000,000 Provider-Payer $0 $0 $9,840,000,000 Total $2,320,000,000 $3,060,000,000 $21,600,000,000 Table Annual Return by Level by Stakeholder Group after Implementation Level 2 Public Payer Pharmacy Laboratory Radiology Health Providers Benefit $2,320,000,000 $1,350,000,000 $4,080,000,000 $3,570,000,000 $38,900,000 $10,200,000,000 Cost $0 $0 $0 $0 $0 $0 Net $2,320,000,000 $1,350,000,000 $4,080,000,000 $3,570,000,000 $38,900,000 $10,200,000,000 Level 3 Benefit $3,060,000,000 $1,640,000,000 $8,490,000,000 $6,060,000,000 $58,400,000 $24,700,000,000 Cost $0 $382,000,000 $43,200,000 $38,700,000 $3,680,000 $19,700,000,000 Net $3,060,000,000 $1,260,000,000 $8,450,000,000 $6,020,000,000 $54,700,000 $5,020,000,000 Level 4 Benefit $21,600,000,000 $1,670,000,000 $13,200,000,000 $8,210,000,000 $97,300,000 $49,500,000,000 Cost Unknown $382,000,000 $43,200,000 $38,700,000 $3,680,000 $16,000,000,000 Net $21,600,000,000 $1,290,000,000 $13,100,000,000 $8,170,000,000 $93,600,000 $33,500,000, The Value of Healthcare Information Exchange and Interoperability

137 Sensitivity Analysis for Annual Level 4 Net Value Low High Low High Net Net Low High Percent Percent Variable Value Value Delta Delta Impact Impact Average lab test cost $68.7 $105 $9.07 $ % 35% Average radiology test cost $72.2 $94.6 $5.62 $16.8 7% 22% Laboratory $ per person-yr $62.1 $93.5 $15.7 $ % 20% Radiology $ per person-yr $64.9 $90.7 $12.9 $ % 17% Percent of esoteric tests (lab) $73.5 $84.1 $4.30 $6.31 6% 8% Number of chart requests $71.5 $84.0 $6.25 $6.24 8% 8% Percent of esoteric tests (radiology) $75.1 $82.4 $2.66 $4.59 3% 6% Outpatient system cost $73.3 $82.3 $4.48 $4.48 6% 6% Pages per chart $73.3 $82.3 $4.47 $4.46 6% 6% Percent of tests that are redundant (radiology) $73.9 $81.7 $3.88 $3.87 5% 5% Claims attachment savings $74.1 $81.5 $3.72 $3.72 5% 5% Claims attachment volume $74.1 $81.5 $3.72 $3.72 5% 5% Percent of tests requiring film (radiology) $74.5 $81.1 $3.29 $3.29 4% 4% Provider interface cost $75.1 $80.5 $2.65 $2.65 3% 3% Remittance advice volume $77.0 $80.3 $0.83 $2.46 1% 3% Claims submission savings $76.3 $79.3 $1.49 $1.49 2% 2% Remittance advice savings $76.5 $79.1 $1.28 $1.27 2% 2% Percent of studies redundant (lab) $76.7 $78.9 $1.12 $1.12 1% 1% Phone minutes per prescription $76.7 $78.9 $1.06 $1.06 1% 1% Pharmacy hourly salary $77.0 $78.6 $0.828 $ % 1% Inpatient system cost $77.0 $78.6 $0.779 $ % 1% Clinical hourly salary $77.3 $78.3 $0.513 $ % 1% Number of external referrals $77.5 $78.1 $0.276 $ % 0% Stakeholder interface cost $77.6 $78.0 $0.227 $ % 0% Handwritten script call rate (pharmacy) $77.7 $77.9 $0.128 $ % 0% Minutes to complete a report (public health) $77.7 $77.9 $0.099 $ % 0% Percent of public health reports requiring manual handling $77.8 $77.8 $0.010 $ % 0% Table continued on next page Chapter 10: Net Value of HIEI 129

138 Table Sensitivity Analysis for Annual Level 4 Net Value (continued) Low High Low High Net Net Low High Percent Percent Variable Value Value Delta Delta Impact Impact Number of public health departments with interfaces $77.8 $77.8 $0 $0 0% 0% Percent of cases reported by providers (public health) $77.8 $77.8 $0.010 $0 0% 0% Cost per electronic public health report $77.8 $77.8 $0 $0 0% 0% in billions 130 The Value of Healthcare Information Exchange and Interoperability

139 Chapter 11: Limitations CITL With little real-world HIEI experience or research on its impact, the projections in this report are necessarily limited. Cost and benefit numbers are derived from the HIEI model into which the best available evidence was incorporated, combining estimates from experts and a small number of studies. Many of the extant studies are based on experience at large providers; this experience may not represent national average experience. Some national statistics fundamental to the projections are not available. For example, the percent of prescriptions requiring phone calls, used in Chapter 5, Pharmacy, is not reported; CITL used an Expert Panel estimate instead. CITL faced time and resource constraints that narrowed the scope of this research.the analysis focuses on provider-centric, encounter-specific transactions between providers and their main partners in care delivery: other providers, pharmacies, payers, labs and radiology providers, and public health departments. However, transactions flow between these partners directly (for example, between payers and pharmacies), and among many other participants in the U.S. healthcare system: patients, PBMs, regulators, accrediting agencies, equipment and supply companies, research institutions, employers, and others. Though Level 4 interoperability would support nearly all these communications, costs and benefits from these transactions are not reflected in the model. Further, the model considers only the value from data exchange. Improved data integration between providers and stakeholders could create additional value not captured in this report. For example, the opportunity to share data between providers and pharmacies or labs may allow creation of a complete medication or problem list for healthcare providers, while maintaining appropriate security and confidentiality of personally identifiable information. For all of these reasons, this should be considered an incomplete assessment of HIEI impact. Another limitation stems from the uneven research on HIEI impact in the various topic areas. CITL found no studies to support projections of clinical or organizational benefits (or costs), though it is reasonable to believe that HIEI would have significant positive effects on clinical care and workflow.thus, the analysis only quantifies the financial impact of the transactions considered. For each provider-stakeholder relationship, varying amounts of evidence were available to calculate impact, resulting in different granularity of analysis and results from section to section. Implementing the IT required for interoperability would have wide-reaching organizational ramifications. Integrated computerized order entry, electronic clinical decision support, EHRs, administrative systems, and other applications will have financial, clinical, and organizational value independent of their contributions to HIEI.The financial Chapter 11: Limitations 131

140 benefits projected from time savings may be realized as improved productivity or service quality rather than pocketed dollar savings, if employees are redeployed.this report does not discuss other implications such as practice re-engineering, but they are likely to occur and should be discussed in conjunction with the findings. The model does not take into account the financial impact of avoided tests and other changes in utilization that flow from improved information exchange.the annual value of avoided redundant tests would likely translate to lost revenue for some organizations. The analysis does not include any system costs for stakeholders. It is likely that some stakeholders would need new systems to participate in Level 3 or 4 interoperability. On the provider side, it does not account for costs of converting legacy data, which could be important for some HIEI processes such as chart requests, or costs of re-engineering workflow. The model does not address the costs of developing relevant standards to support HIEI at Level 3 or Level 4.While some of this work is underway, a coherent set of reference standards has not been specified completely nor mandated for use in either the public or private sector. Initiatives such as the Consolidated Healthcare Informatics federal effort, and the HIPAA legislation, are advancing the standards agenda, but standards are not yet complete for either clinical or administrative data interoperability. The model assumes the cost and benefit from complete data exchange at each HIEI level, simulating the current system that currently does not have agreed-upon minimal data sets. If minimum sets are nationally adopted, this would decrease both the cost and the benefit of data exchange at all HIEI levels.the model also assumes a baseline that accounts for all indicated transactions, even though some transactions are now incomplete. For example, the model assumes costs for full reporting of communicable diseases though they are known to be currently underreported, and it assumes providers always request charts when they are missing information, even though they do not always do so. Changing these assumptions would change the projections. Finally, CITL modeled a ten-year implementation rollout, a scenario that would be adversely affected if standards are not adopted, or technical resources and personnel are not adequate to complete the task in that time. And the model does not attempt to account for population growth, changes in utilization patterns due to population shifts, or economic inflation. 132 The Value of Healthcare Information Exchange and Interoperability

141 Chapter 12: Conclusions CITL CITL examined costs and benefits of three levels of national HIEI and compared them to a baseline infrastructure consisting predominantly of information exchange using phone and mail. Based on projections of a model that incorporates both costs and benefits, CITL reached seven principal conclusions. 1. National implementation of HIEI is a good investment. Full national implementation of any of the three levels examined would decrease costs. Even moving fully to faxed-based communication, already universally available, would save the nation $21.6 billion each year. More sophisticated interoperability would incur new costs, but the benefits that would result would exceed such costs. 2. Systems that enable standardized information exchange, or Level 4 HIEI, are by far the best investment for the nation as a whole, yielding net savings of $77.8 billion annually, or 5% of U.S. healthcare expenditures. Once fully implemented, Level 4 HIEI costs $16.5 billion per year, and produces $94.3 billion in benefits from saving time ($80.9 billion) and avoiding duplicative laboratory and radiology tests ($13.4 billion).the $77.8 billion savings represents 5% of the $1.553 trillion spent on U.S. healthcare in Even while participants incur the cost of installing systems during implementation, Level 4 interoperability is financially positive. HIEI generates benefits immediately, and benefits accelerate as more participants connect. In CITL s ten-year rollout scenario, cumulative benefits outweigh costs beginning in year five, and the ten-year implementation period accumulates $337 billion in net returns. 3. Standardized information exchange is also the best investment for hospitals and medical group practices. Medical offices enjoy high financial returns because they conduct a relatively large number of transactions with outside organizations (many laboratory tests, most imaging studies, referrals, and chart requests). Even if they need to purchase entirely new electronic clinical and administrative systems, as this analysis conservatively assumes, the net value to individual hospitals and offices of all sizes is positive with Level 4 HIEI. Large organizations with high volumes of transactions get the best financial returns. Nationally, providers would realize annual net returns of $33.5 billion with full implementation of Level 4 HIEI. Chapter 12: Conclusions 133

142 4. Standardized information exchange is probably the best investment for independent laboratories, radiology centers, pharmacies, public health departments, and payers. The analysis shows that Level 4 offers the best returns to labs, radiology centers, public health departments, and payers. Though pharmacies have slightly better returns at Level 2, the analysis does not account for factors that would undoubtedly tip the scale to make Level 4 their best option. While CITL could not find quantitative evidence supporting the following assumptions, it believes that investing in Level 4 standardization would prove most effective in avoiding adverse drug events, promoting cost-effective formulary management, and automating insurance paperwork for some medications. With full national implementation, CITL projects stakeholders would reap the following net returns annually: Payers $ 21.6 billion Independent laboratories $ 13.1 billion Radiology centers $ 8.17 billion Pharmacies $ 1.29 billion Public health departments $ billion An important caveat to this conclusion is that the cost/benefit analysis for these stakeholders does not include costs for any upgrades required to make their systems Level 4 compliant. National HIEI would require both private sector investment (for laboratory, radiology, pharmacy, and payer systems) and public investment (for public health, Medicare, and Medicaid systems). CITL was unable to quantify the amount of such investment. 5. The value of standardized information exchange is even higher than these numbers suggest. For reasons of limited evidence and limited project scope, the projections above cannot be considered a comprehensive estimate of HIEI value. As described in Chapter 11, the model did not quantify several potentially important costs and benefits of national interoperability, including its impact on quality of care and clinical workflow. On balance, CITL believes the net value of these costs and benefits is significantly positive, and that it is most positive with Level 4 functionality. 6. Non-standardized information exchange is not a good investment. Though Level 3 HIEI would establish a national IT infrastructure, non-standardized information exchange requires a large number of interfaces, resulting in costs that are higher than for Level 4. As a result, it takes far longer to reach breakeven (12 years in CITL s analysis, compared to five years for Level 4), and ongoing returns are modest. 134 The Value of Healthcare Information Exchange and Interoperability

143 It is also not realistic for the nation as a whole to plan to step up over time, hoping for an orderly progression from non-standardized Level 3 to standardized Level 4 interoperability. Level 3 HIEI requires that each entity develop interfaces to others coding schemes, an investment that locks in local solutions, diverts resources from developing more universal approaches, and delays conversion to national standards. It also guarantees additional costs would be incurred down the road to convert to national standards once they exist. For individual organizations and regional data-sharing initiatives, decisions about whether or not to develop non-standardized Level 3 information exchange may not be so clear.they would need to weigh their systems preparedness for Level 3, the stability of their external partners codes, and the benefits they would expect to realize from customized solutions in the time remaining before national standards are available. In CITL s analysis, many organizations would do better to adopt Level 2 as an interim step. 7. Data standards are worth hundreds of billions of dollars. Developing national standards is an absolute requirement if the U.S. is to have cost-effective healthcare information exchange and interoperability. One can conceptualize the difference between Level 3 and Level 4 HIEI as the value of standards. In CITL s analysis, standards are worth $371 billion during the ten-year implementation period, and $53.9 billion per year thereafter. A more detailed assessment of standards is beyond the scope of this project, and CITL did not evaluate what standards are needed, or how much they would cost to develop. Though the costs of developing national standards would be a fraction of the benefits cited above, millions of dollars would be required. It is likely that only the federal government would be able to commit the necessary resources and command enough market influence to implement nationwide standards. The question of how to achieve nationwide interoperability is complex. In order to move to Level 3 or Level 4 HIEI, the nature of interoperability requires simultaneous participation of providers and key stakeholders. CITL s analysis did not address regional interoperability, but it is likely that regional initiatives will arise over time. If national standards can be set for them to follow, these networks may one day knit together into a seamless, national Level 4 healthcare information system. Though this analysis demonstrates that participation in HIEI offers positive financial returns to providers and many other health system stakeholders, the inherently conflicting financial incentives of the U.S. healthcare system raise complex policy questions about who should pay for development and implementation. It is extremely unlikely that standardized interoperability will be achieved without broad and concerted effort, federal leadership, strong policy incentives, and possibly legislative mandates at state and federal levels. Chapter 12: Conclusions 135

144 References 1. Centers for Medicare & Medicaid Services: The Health Accounts: National Health Expenditure. CMS, Available at: The Value of Healthcare Information Exchange and Interoperability

145 Appendix 1: Methods CITL CITL employs a range of methods literature reviews, expert interviews, Expert Panel estimates, and influence diagrams to gather and synthesize evidence. Generally, CITL depends on published sources for data and, where lacking, relies on experts to fill critical gaps. CITL evaluates data using its Healthcare IT (HIT) Value Framework and builds software models to project value. CITL Healthcare IT Value Framework CITL defines value as the sum of financial, clinical, and organizational benefits directly resulting from the implementation of a given healthcare information technology. Researchers can derive a comprehensive representation of HIT value by collecting and analyzing data for each dimension, described below. Financial Value Cost reductions from decreased administrative, clinical, and other resource requirements (for example, elimination of paper chart pulls and transcription services) Revenue enhancements from improved charge capture and times from charge entry to billing Productivity gains from increased procedure volume, reductions in length of stay, and increased transaction processing rates Clinical Value Care process advances from better adherence to clinical protocols and improvements in the stages of clinical decision-making (for example, diagnosis, treatment, and follow-up) Improved patient outcomes from reductions in medical errors, decreases in morbidity and mortality, and expedited recovery times Organizational Value Stakeholder satisfaction improvements from improved access to healthcare information, decreased wait times, and more positive perceptions of care quality and clinician efficacy Risk mitigation from decreases in malpractice litigation and increased adherence to federal, state, and accreditation organization standards Appendix 1: Methods 137

146 Literature Review CITL completed a systematic review of literature on HIEI and related topics.the goal was to identify relevant publications in U.S. academic literature and trade and general press. CITL uses systematic review methodologies and standard techniques adapted from Stanford University s Evidence-based Practice Center to find, review, and analyze disparate literature. 1 CITL relied on several sources to identify HIEI-related studies, using the broad spectrum of search tools and keywords included in Appendix 2.The project s major search was completed by a medical librarian using Medline, following consultation with CITL on project objectives. CITL staff then performed smaller, more targeted searches as work progressed, using OVID and Reference Manager. 2 CITL staff also searched a wide array of nonacademic literature, including trade journals, government publications, general press, vendor and consultant studies, proprietary research services, and studies by foundations and professional associations. CITL searched this literature using standard search engines and tools: Google, HIMSS Solutions Toolkit, Library of Congress, Copernic, 3 Medline, and EBSCO. Expert Panelists, CITL Advisory Board members, and other experts recommended relevant studies and researchers. CITL analysts contacted several authors to obtain copies of articles, clarify study results, and identify additional studies. Finally, CITL searched the bibliographies of HIEI-related sources for additional citations and included them when relevant. Each source identified in a search was reviewed by one or more CITL staff. In the initial reading of each article, CITL staff decided whether to include or exclude it from further review. Key articles were read by more than one person. Discrepancies in interpretation were resolved through discussion. CITL found few sources targeting HIEI value specifically, not surprising given the lack of real world implementation of interoperable systems. Experts CITL convened a panel of nationally known experts to advise us throughout this project: David J. Brailer, MD, PhD. Senior Fellow, Health Technology Center. Chairman and CEO, CareScience. Adjunct Professor of Health Care Systems, The Wharton School; Clinical Professor of Internal Medicine, University of Pennsylvania Health System; and Senior Fellow, Leonard Davis Institute of Health. 138 The Value of Healthcare Information Exchange and Interoperability

147 William R. Braithwaite, MD, PhD, FACMI. Independent consultant. Former Senior Advisor on Health Information Policy, Department of Health and Human Services. Paul C. Carpenter, MD, FACE. Associate Professor of Medicine, Divisions of Endocrinology-Metabolism and Health Informatics Research, Mayo Clinic, Rochester, MN. Daniel J. Friedman, PhD. Independent consultant. Robert Miller, PhD. Associate Professor of Health Economics in Residence, Institute for Health & Aging and Department of Social and Behavioral Sciences, University of California San Francisco. Arnold Milstein, MD, MPH. Medical Director, Pacific Business Group on Health; U.S. Health Care Thought Leader, Mercer Human Resource Consulting. J. Marc Overhage, MD, PhD, FACMI. Investigator, Regenstrief Institute for Health Care. Associate Professor of Medicine, Indiana University School of Medicine. Scott S.Young, MD, FAAFP. Senior Clinical Advisor, Office of Clinical Standards and Quality, Centers for Medicare and Medicaid Services. Kepa Zubeldia, MD. President and CEO, Claredi Corporation. Expert Panel biographical sketches are included in Appendix 4. With so little research and literature on HIEI value, Expert Panelists played a particularly important role throughout this project, and they contributed input in structured phone interviews, a one-day meeting, polling and discussions, and reviews of report findings and conclusions. They shared their views and experiences related to HIEI, advised CITL on literature and other sources and where to find data, and they estimated key data points that were not available from published sources. CITL Senior Analysts interviewed the Panelists by phone using a set of questions focused on the benefits of interoperability, who would realize those benefits, standards, and implementation issues. HIEI Expert Interview Guide 1. Have you researched the costs/benefits of interoperability? How did you approach this research? What did you find? 2. Which information exchanges are likely to yield the highest clinical, financial, or organizational value for providers? How much value? 3. Which healthcare stakeholders will accumulate the most value from these data exchanges? How much value? 4. What interoperability standards (for example, transaction, vocabulary) in these information exchanges would most benefit the U.S. healthcare system? Which are most developed and adopted? Appendix 1: Methods 139

148 5. How should providers prioritize systems interoperability within their own organizations? 6. How should providers prioritize systems interoperability between their organization and other healthcare stakeholders? 7. Could you refer us to other people or resources related to the value of HIE and interoperability? CITL used these discussions to confirm that staff was targeting the correct core content areas, to inform development of our HIEI taxonomy, and to surface areas of disagreement for discussion at the one-day meeting. CITL facilitated a one-day Expert Panel roundtable discussion on HIEI value. During this session, experts assessed CITL s functionality taxonomy (HIEI Levels 1 4), evaluated the CITL approach to each core topic, and alerted staff to key issues in each area. Each expert was given multiple opportunities to comment on each topic. After the roundtable, expert opinions and views were summarized and the group had further discussions on some topics with relevant experts. CITL staff used the knowledge obtained from this meeting to further revise and refine the model, the HIEI taxonomy, and the ongoing research. Few individuals have broad experience with HIEI and the panelists were no exception; some of the panelists with specialized knowledge declined to offer global estimates or comment on areas where they felt unqualified. They sometimes disagreed. CITL polls panelists using a modified Delphi technique in which each panelist answers a set of questions, then views all panelists responses with any associated commentary, and votes again.their estimates did not always converge, and this variance was incorporated into the model along with the mean point estimates. CITL interviewed more than 20 experts in addition to the panelists. Some were referrals from the panelists, some were provider IS executives working with various facets of interoperability, and some were directing regional interoperability initiatives. All were interviewed using the HIEI Expert Interview Guide. Software Model CITL created a model that represents how system and participant organization characteristics interact to create value. It was created as an influence diagram using Analytica software from Lumina Decision Systems, Inc. 4 This software allowed us to consider many factors simultaneously and to incorporate probability distributions to be explicit about uncertainties. Results in this report were output from the model, and underlying calculations are summarized in tables. 140 The Value of Healthcare Information Exchange and Interoperability

149 References 1. Stanford University Evidence-based Practice Center, University of California, San Francisco, California. Web site: 2. Reference Manager version 10.0, Philadelphia, PA:Thomson-ISI ResearchSoft, Copernic 2001 Plus, Quebec, Canada: Copernic Technologies. 4. Analytica version 3.0.0, Los Gatos, CA: Lumina Decision Systems, Appendix 1: Methods 141

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151 Appendix 2: Literature Search Strategy CITL Sources Associations: Healthcare Information and Management Systems Society, American Medical Informatics Association, American Medical Association, American Hospital Association, American College of Physicians-American Society of Internal Medicine, American Academy of Family Physicians, Medical Group Management Association, Association for Electronic Health Care Transactions, ASTM International, National Association of Insurance Commissioners,American Association of Health Plans-Health Insurance Association of America, Joint Healthcare Information Technology Alliance. Healthcare software vendors: GE Medical Systems, Cerner, IDX, Eclipsys, McKesson, Siemens, Meditech, EPIC, Microsoft, Sun, Intersystems. Payer software vendors: Athenahealth, RealMed, Trizetto, ProAct Technologies, denovis, HealthTrio, QCSI. Middleware /integration engine vendors: SeeBeyond, Quovadx, TIBCO, NeoTool. Systems integrators/consultants: McKinsey, Cap Gemini Ernst & Young, First Consulting Group, Accenture, Deloitte & Touche, PriceWaterhouseCoopers, Superior, BearingPoint, Perot Systems, EDS, Computer Sciences Corporation, Computer Associates, Beacon Partners, BIG Consulting Boundary Information Group, IBM,TRW. Research organizations: RAND, Lewin Group, Gartner Group, Forrester Research, Health Technology Center, META, KLAS, Yankee Group, The Advisory Board, IMS Health, Scott Levin. Investment banks: Goldman Sachs, WR Hambrecht, Piper Jaffray, CSFB, Bear Stearns, Merrill Lynch, JP Morgan Chase, Lehman Brothers, Citigroup. Consortia: New England Healthcare EDI Network, Care Data Exchange, North Carolina Healthcare Information and Communications Alliance, Massachusetts Health Data Consortium, New Mexico Coalition for Healthcare Information Leadership Initiatives, Calinx, National Health Information Infrastructure, ehealth Initiative, HIMSS IHE Integrating the Healthcare Enterprise,World Wide Web Consortium, International Organization for Standardization for OSI and healthcare. Foundations and institutes: California HealthCare Foundation, Pew Charitable Trust, Kaiser Family Foundation, Center for Studying Health System Change, Kanter Appendix 2: Literature Search Strategy 143

152 Family Foundation, Commonwealth Fund, Institute for Healthcare Improvement, Robert Wood Johnson Foundation, Institute for the Future, Scottsdale Institute. Accreditators: Joint Commission on Accreditation of Healthcare Organizations, Electronic Healthcare Network Accreditation Commission, URAC, National Committee for Quality Assurance, Claredi. Federal and state entities: National Institute of Health, Agency for Healthcare Research and Quality, Center for Medicare & Medicaid Services, Department of Health and Human Services, Office of Management and Budget, General Accounting Office, Center for Disease Control, Veterans Administration, National Center for Health Statistics, National Committee on Vital and Health Statistics, National Institute of Standards and Technology, Workgroup for Electronic Data Interchange, National Research Council, Institute of Medicine. Providers: Partners, CareGroup, Kaiser Permanente, Premier, Geisinger, Baylor. Payers: Empire BCBS, BCBS IL, Aetna, United, CIGNA, Humana, BCBS Assn, Oxford, Highmark, Blue Cross of CA, Anthem BCBS, Regence BCBS. Clearinghouses and intermediaries: NDCHealth,WebMD Transaction Services, ProxyMed/MedUnite, RxHub, SureScripts. Pharmacy benefits managers: Express Scripts, Caremark Rx, AdvancePCS, Medco Health. Purchasers: National Business Group on Health, Pacific Business Group on Health, Leapfrog Group. Tools and Databases Copernic: Copernic 2001 Plus, Quebec, Canada:Copernic Technologies, Incorporated. HIMSS Solutions Toolkit: Healthcare Information and Management Systems Society (HIMSS), Chicago, IL. Library of Congress: Thomas,Washington, DC:Library of Congress. thomas.loc.gov MEDLINE: Medline,Washington, DC:National Library of Medicine. EBSCO Information Services: Ipswich, MA. Reference Manager: Reference Manager (RefMan) version 10.0, Philadelphia, PA: Thomson-ISI ResearchSoft, Using all fields searches in RefMan and OVID, CITL performed searches on HIEI keywords individually and in combinations with Boolean logic operators. When appropriate, CITL truncated terms like computerized to computer to improve search results. 144 The Value of Healthcare Information Exchange and Interoperability

153 Keywords healthcare (health care) interoperability information technology computer electronic systems application database software network (local area network, LAN) Internet intranet ehealth ebusiness infrastructure architecture integration interface interconnectivity compatibility data information exchange transmission standards clinical provider physician hospital value benefit Return On Investment (ROI) cost benefit Electronic Data Interchange (EDI) Community Health Information Network (CHIN) National Health Information Infrastructure (NHII) CITL searched the academic literature through RefMan and PubMed using Medical Subject Heading (MeSH) terms.these searches included the following terms: Systems Integration Computer Communication Networks/st [Standards] Information Systems/og, st [Organization & Administration, Standards] Medical Informatics/og, st [Organization & Administration, Standards] Delivery of Health Care Appendix 2: Literature Search Strategy 145

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155 Appendix 3: Model Building Blocks CITL Provider Size Categories Hospitals are grouped into four size categories according to the number of beds reported by the American Hospital Association (AHA) in Results are reported for an average hospital in each category, based on the average number of encounters (admissions plus outpatient visits) for all hospitals in that category. No similar statistics about office practices exist. CITL used AMA data to group office practices into small, medium, and large groups, exemplified by practices with 5, 10, and 25 clinicians. Number of clinicians per office and beds per hospital Provider Size Categories Physician Groups Community Hospitals 1 Small Medium Large Small Medium Large Jumbo (32*) (110*) (279*) (597*) Number of individual practicing physicians 668, ,197 2, and hospitals Table 1 * A hospital with the average number of encounters has this many beds. For illustrative purposes only; this number is not used in the model. Upper Bound of Efficacy CITL understands that no system works perfectly. Systems go down, new situations require workarounds, and some transactions will always be handled manually. Expert panelists tended to incorporate real-world performance into their estimates. When CITL used inputs from sources that did not explicitly take real-world dynamics into account, they applied a 5%discount. Appendix 3: Model Building Blocks 147

156 Average Provider Visit Volume To calculate visit volumes, CITL used average physician office visit volume rates, patient visit hours per week, and practice weeks per year from the American Medical Association (AMA) Socioeconomic Statistics. 3 The AMA reported that U.S. physicians conducted 76 office visits per week, spent 27 hours per week with patients, and practiced 47.4 weeks per year. CITL also estimated primary care providers (PCPs ) visit volume, since they deliver a large proportion of outpatient care. The AMA did not publish PCP statistics, so CITL calculated PCP mean statistics by combining the specialist categories identified by the AMA as PCPs (general practice, family practice, general internal medicine, obstetrics/gynecology, and pediatrics). 4 PCPs had an average of 86.9 visits per week, 30.6 patient visit hours per week, and 47.7 practice weeks per year. Model values are ranges defined by these two sources: visits per week, visit hours per week, and practice weeks per year. Means are 81.5 visits per week, 28.8visit hours per week, and 47.6 practice weeks per year. Combining the appropriate means produces averages of 353 visits per month, 3,80 visits per year, and 2.83 visits per hour. Average Provider Panel Size CITL was unable to find national panel size figures, so staff developed a proxy for use in the model by combining data from three sources. The first source was the American Academy of Family Physicians.Their 1997 survey of salaried family physicians reported an average panel size of 1,564 patients, with an average patient care time of 70.1%. 5 Extrapolating from these data, CITL determined that an equivalent full-time family physician would have a panel size of 2,230 patients. The second source was Wang s paper on Electronic Medical Records in primary care settings, citing an average panel size of 2,500 patients for full time physicians in a large integrated delivery network. 6 The third source was Honigman s 2001 study, which reported that 23,064 patients came in for 8,514 visits in a one-year period. 7 CITL calculated an average of 3.84 visits per panel member per year.when CITL combined this estimate with the average of 3,80 visits per provider per year, they estimated that the average provider in Honigman s study could support a panel of 1,010 patients. 148 The Value of Healthcare Information Exchange and Interoperability

157 CITL averaged all three estimates to reach the final value used in the model 1,910 ± 84 patients per provider. Since these estimates vary widely, CITL checked the face validity of our estimate with several healthcare managers. When asked to estimate provider panel sizes in their organizations, they gave numbers in the range of the three estimates above. The managers and the Expert Panelists agreed that an average panel of 1,910 patients per provider is a reasonable approximation for the entire U.S. healthcare system. Outpatient Capitation Rate CITL was unable to find national average capitation rates for outpatient providers.they searched for broad and category-specific (medication, laboratory, and radiology) rates, as well as per member per month expenditure figures. One source (Harvard School of Public Health) was able to provide published data on the percent of providers at-risk for pharmacy. No other sources were able to furnish published, unpublished, or expert opinion data. Most sources recommended that CITL contact HHS and CMS, but according to contacts at AHRQ (Center for Cost and Financing, MEPS) and CMS (Office of the Actuary, National Health Statistics Group), neither agency publishes these rates. Unable to find reported rates, CITL used AMA Socioeconomic Statistics data reporting general physician percent revenue from capitated contracts. 8 Using the AMA s definition of PCPs, CITL calculated a mean PCP capitation rate of 11.6%with a large standard deviation of 5.4%. Average Annual Outpatient Visits per U.S. Resident The National Center for Health Statistics Health, United States, 2002 reports million visits to physicians offices and 83.3 million to hospital-based outpatient clinics. 9 The United States Census Bureau Census 2000 reported the U.S. population to be 281,421, CITL combined these figures to calculate an average 3.2 visits per U.S. resident per year. Average Annual Outpatient Expenditures per U.S. Resident CITL used Wang s estimates of annual outpatient medication, laboratory, and radiology expenses per person:$ for medications, $86.52 for laboratory costs, and $ for radiology costs. 11 CITL discussed these figures with several experts and managers; while some estimated different ratios among these categories, all felt comfortable with the total annual expenditure of $614 per person. Appendix 3: Model Building Blocks 149

158 Annual National Outpatient Prescription Volume According to the National Institute for Health Care Management s (NIHCM s) 2002 pharmacy prescription expenditure report, retail pharmacies dispensed 3.1 billion prescriptions in According to a large, nationwide retail pharmacy, 40%of U.S. prescriptions are new, and 60%are refills. 13 Applying 40%to 3.1 billion dispensed, CITL estimated 1.24 billion new outpatient prescriptions per year in the U.S. U.S. Expenditure Burden Some nationally reported expenditures are calculated using averages for insured non- Medicare patients. CITL created an insured expenditure burden factor to account for different expenditure patterns among Medicare, insured non-medicare, and uninsured patients. One of CITL s Expert Panels estimated average expenditures for Medicare beneficiaries to be approximately 4 times those of insured, non-medicare patients. CMS data from 2000 indicated that there are 39.6 million Medicare patients that comprise 14.1%of the population. 14 The nature and costs of care to the uninsured are poorly tracked, with little published data. CITL cannot be certain expenditures among uninsured patients are similar to the insured population where CITL derived its estimates. CITL used the Kaiser Family Foundation s estimate of 15.8%of non-elderly U.S. population being uninsured, 15 and exclusively considered the insured portion of U.S. population. Table 2 Calculating the Number of Insured Patients and U.S. Expenditure Burden U.S. population 100% Percent of Medicare patients in population 14.1% Percent of non-medicare patients in population 85.9% U.S. population 100% Percent of non-medicare patients who are uninsured 15.8% Percent of non-medicare patients who are insured 84.2% U.S. population 281,421,906 Percent of non-medicare patients in population 85.9% Percent of non-medicare patients who are insured 84.2% Number of insured patients in U.S. 203,614,045 Number of Medicare patients 39,600,000 Medicare expenditures as a multiple of insured non-medicare expenditures 4 Number of insured non-medicare patients with equivalent expenditures to Medicare population 158,400,000 Number of non-medicare insured patients in U.S ,614,045 U.S. expenditure burden (number of patients) 362,000, The Value of Healthcare Information Exchange and Interoperability

159 Format of Results Unless otherwise noted, all monetary amounts are in 2003 dollars. Calculated results are presented to three significant digits. References 1. American Hospital Association. Hospital Statistics. AHA, American Medical Association. Physician Characteristics and Distribution in the U.S AMA, American Medical Association. Physician Socioeconomic Statistics AMA, American Medical Association. Physician Characteristics and Distribution in the U.S , Moore KJ:The Academy s First Survey of Salaried Family Physicians. Fam Pract Manag 4(7):82, 85 86, Wang SJ, Middleton B, Prosser LA, Bardon CG, Spurr CD, Carchidi PJ, Kittler AF, Goldszer RC, Fairchild DG, Sussman AJ, Kuperman GJ, Bates DW:A Cost-Benefit Analysis of Electronic Medical Records in Primary Care. Am J Med 114: , Honigman B, Lee J, Rothschild J, Light P, Pulling RM,Yu T, Bates DW:Using Computerized Data to Identify Adverse Drug Events in Outpatients. JAMIA 8(3): , American Medical Association. Physician Socioeconomic Statistics AMA, Pastor PN, Makuc DM, Reuben C, Xia H:Chartbook on Trends in the Health of Americans. Health, United States. National Center for Health Statistics, United States Census Bureau. USA QuickFacts from U.S. Census Bureau, Census U.S. Census Bureau, Available at: 11. Wang, National Institute for Health Care Management Research and Educational Foundation. Prescription Drug Expenditures in 2001:Another Year of Escalating Costs. Available at: 13. Personal Communication (Privileged). Dec Centers for Medicare & Medicaid Services Data Compendium. CMS, Available at: Williams C, Treloar J, Lundy J, Levitt L, Wang J:Trends and indicators in the changing health care marketplace. Kaiser Family Foundation, Appendix 3: Model Building Blocks 151

160 152 The Value of Healthcare Information Exchange and Interoperability

161 Appendix 4: Expert Panel Biographies CITL David J. Brailer, MD, PhD Senior Fellow and Advisor, Health Technology Center Dr. Brailer is Senior Fellow at the Health Technology Center in San Francisco, a nonprofit research and education organization that provides strategic information and resources to healthcare organizations about the future impact of technology in healthcare delivery. At the Center, Dr. Brailer advises a variety of regional and national data sharing projects and several major corporations about the role of information technology in improving the quality of care. Dr. Brailer recently completed ten years as Chairman and CEO of CareScience, Inc., a leading provider of care management services and Internet-based solutions that help reduce medical errors and improve physician and hospital-based performance.while at CareScience, Dr. Brailer led the company in developing groundbreaking inventions with major research institutions, establishing the nation s first healthcare Application Service Provider (ASP) and creating the first care management business process outsourcing partnership.this innovative outsourcing model allowed hospitals to outsource their entire quality management department to CareScience to be managed on an atrisk basis. Dr. Brailer also designed and oversaw the development of one of the first community-based health information exchanges and successfully led its first implementation in Santa Barbara, California. Dr. Brailer holds doctoral degrees in both medicine and economics. While in medical school, he was a Charles A. Dana Scholar at the University of Pennsylvania, School of Medicine, and was the first recipient of the National Library of Medicine Martin Epstein Award for his work in expert systems. Dr. Brailer was among the first medical students to serve on the Board of Trustees of the American Medical Association. He completed his medical residency at the Hospital of the University of Pennsylvania and became board certified in internal medicine along the clinical investigator pathway. Dr. Brailer was a Robert Wood Johnson Clinical Scholar at the University of Pennsylvania and until recently, was active in patient care delivery, with an emphasis on immune deficiency. He earned his PhD in managerial economics at The Wharton School. Appendix 4: Expert Panel Biographies 153

162 William R. Braithwaite, MD, PhD, FACMI Independent Consultant in Health Information Policy William R. Braithwaite, MD, PhD, FACMI is in active practice as an independent consultant in Health Information Policy and Strategic Planning. From 2001 to 2003, he served as National Director of HIPAA Advisory Services in the Washington DC office of PriceWaterhouseCoopers, where he was described as the nation s most visible authority on Administrative Simplification law and regulations. In late 1994, he was asked to work with the U.S. Department of Health and Human Services (HHS) to continue development in the area of health information standards as Senior Advisor on Health Information Policy in the Office of the HHS Secretary. Until 1996, he was Associate Professor and Head of the Section on Medical Informatics, which he established in the Department of Preventive Medicine and Biometrics at the University of Colorado School of Medicine. On a health policy sabbatical with the U.S. Senate Finance Committee health staff in , he was able to promote his vision by working with an industry coalition to develop the legislative language that became the Administrative Simplification Subtitle of HIPAA. Dr. Braithwaite is recognized as one of the nation s leading authorities on federal regulation of standards for health information. He was a major contributor and one of the authors of the Administrative Simplification Subtitle of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its subsequent regulations setting federal standards for transactions, code sets, identifiers, security, and privacy of personal health information. At regional, national, and international meetings, he makes presentations exploring current issues in health information technology and the Administrative Simplification law and regulations, and is frequently introduced affectionately as Doctor HIPAA. Dr. Braithwaite has managed large and small organizations, from an international computer user group (as President) to a medical school department (as Acting Chairman), and has been a leader in strategic planning for networking and health information technology at all levels. He has been an active member of the American Medical Informatics Association (and its parent organizations) since 1969, and served on its Board of Directors. He currently serves on the boards of HL7 and AFEHCT. Dr. Braithwaite s honors include election to Fellowship in the American College of Medical Informatics by his peers, the President s Award from the American Medical Informatics Association, the Secretary s Award for Distinguished Service from HHS, and most recently the second Louis W. Sullivan Award from the Workgroup for Electronic Data Interchange (WEDI). Dr. Braithwaite received an MD from the University of Chicago and a PhD in Medical Information Science from the University of California, San Francisco. 154 The Value of Healthcare Information Exchange and Interoperability

163 Paul C. Carpenter, MD, FACE Staff Consultant, Joint Appointment Divisions of Endocrinology- Metabolism and Medical Information Research Associate Professor of Medicine, Mayo Medical School Paul Carpenter, MD, FACE is a dual-appointed Consultant in the Divisions of Endocrinology-Metabolism and Health Informatics Research who joined the medical staff at Mayo Clinic in During , he served as Attending Physician to the U.S. Congress and Supreme Court.At Mayo, Dr. Carpenter is an Associate Professor of Medicine. Dr. Carpenter led a task force at Mayo that reviewed clinical information needs and planned the continuing enterprise evolution to a fully Electronic Medical Record (EMR) for Mayo Foundation and now serves on the administrative EMR implementation group. Serving as architect and chair, he is also responsible for Mayo s electronic document management program. He led a work group at Mayo that installed a digital biomedical library accessible from any enterprise workstation including their group practices in Jacksonville, FL and Scottsdale, AZ. He has also had an ongoing interest in the application of speech recognition and Natural Language Processing to healthcare. Dr. Carpenter currently represents Mayo Foundation as voting member at HL-7. He is a member of the American and International Medical Informatics Associations, IEEE, HL-7, AMA, ACP, American College of Endocrinology, Endocrine Society, American Fertility Society and serves as advisor or editor for several clinical computing organizations or journals. His clinical interests focus on problems in the adrenal, pituitary and gonad, including reproductive disorders in men and women. He has significant experience in the management of patients with adrenal disorders, with a special interest in Cushing s syndrome, adrenal insufficiency, congenital adrenal hyperplasia, and adrenal neoplasms. He has participated in many clinical research projects with resulting publications. His academic publications include over 60 manuscripts, several book chapters and he is a frequent invited educator or speaker concerning his topics of interest. Dr. Carpenter holds a BS from the University of Notre Dame, and received an MD from St. Louis University. Appendix 4: Expert Panel Biographies 155

164 Daniel J. Friedman, PhD Independent Consultant in Population and Public Health Information Services Daniel J. Friedman, PhD is an independent consultant providing population and public health information services. From 1996 until 2003, Dr. Friedman served as Assistant Commissioner of the Bureau of Health Statistics, Research and Evaluation of the Massachusetts Department of Public Health. He has also served as a member of the National Committee on Vital and Health Statistics, which is the public health information policy advisory body to the Secretary of the U.S. Department of Health and Human Services. At NVCHS, he chaired the joint NCVHS/National Center for Health Statistics/U.S. DHHS Data Council process on developing a health statistics vision for the 21st century and served as a member of the National Health Information Infrastructure workgroup. His interests include the development of Web-based interactive systems for disseminating population health information, models for population health, and implementing a strategic vision for population health information in the U.S. He has published in leading public health journals, and is currently developing a book on Health Statistics in the 21st Century: Implications for Policy and Practice. Dr. Friedman obtained his doctorate from the University of North Carolina at Chapel Hill. 156 The Value of Healthcare Information Exchange and Interoperability

165 Robert H. Miller, PhD Associate Professor of Health Economics in Residence, Institute for Health and Aging and Department of Social and Behavioral Sciences, University of California at San Francisco Robert H. Miller, PhD is an Associate Professor of Health Economics in Residence, Institute for Health & Aging and Department of Social and Behavioral Sciences at the University of California San Francisco. Dr. Miller s current research is focused on interrelationships of health information technology, organizational change, and quality improvement. Recent and ongoing IT-related research includes qualitative studies on costs and benefits of electronic medical records in large and small physician practices (for the Robert Wood Johnson Foundation and the California HealthCare Foundation on the effects of the Santa Barbara Clinical Care Data Exchange), and on provider/patient electronic communication in 12 integrated delivery systems (for the Agency for Healthcare Research and Quality), as well as a quantitative study on physician use of the Internet and other IT (for Deloitte Research). Dr. Miller has also conducted analyses of the literature on HMO versus non-hmo plan performance and has analyzed the effects of managed care on physician organization innovation, including efforts by large medical groups to improve patient safety. Dr. Miller received his PhD in Economics from the University of Michigan. Appendix 4: Expert Panel Biographies 157

166 Arnold Milstein, MD, MPH Medical Director, Pacific Business Group on Health Associate Clinical Professor of Psychiatry, University of California- San Francisco Medical Center Arnold Milstein, MD, MPH is the Medical Director of the Pacific Business Group on Health and National Health Care Thought Leader at Mercer Human Resource Consulting. The Pacific Business Group on Health is a nonprofit coalition of major California employers that is nationally recognized for its efforts to improve the quality and availability of healthcare while moderating costs. Dr. Milstein s work focuses on improving healthcare programs for large purchasers, providers and the government. Dr. Milstein s more than 40 book chapters and published articles have centered on health benefits plan performance improvement, utilization management, and healthcare delivery system re-engineering. He has been appointed to national committees to develop standardized performance measures for physicians, hospitals, and health insurers. A Leapfrog Group co-founder, Business Insurance magazine selected him as one of the 20 people who has made a difference in employee benefits management in the past 20 years. The New England Journal of Medicine s series on employer-sponsored health insurance described him as a pioneer in efforts to advance quality of care. He was a National Academy of Science Rosenthal Lecturer in its series on improving healthcare performance and a member of its Committee on Utilization Management. Dr. Milstein is also an Associate Clinical Professor of Psychiatry at the University of California-San Francisco Medical Center and a Worldwide Partner at Mercer. Dr. Milstein holds a BA in Economics from Harvard University, and received an MD from Tufts University and an MPH in Health Services Planning from the University of California-Berkeley. 158 The Value of Healthcare Information Exchange and Interoperability

167 J. Marc Overhage, MD, PhD, FACMI Investigator, Regenstrief Institute for Health Care Assistant Professor of Medicine, Indiana University School of Medicine J. Marc Overhage, MD, PhD is Assistant Professor of Medicine at the Indiana University School of Medicine and Investigator at the Regenstrief Institute for Health Care. He continues to maintain a general internal medicine practice and teaches housestaff and students at the Indiana University School of Medicine. After completing informatics fellowship training, Dr. Overhage served as an Information Advisor for Eli Lilly & Company, a major pharmaceutical and information company. Dr. Overhage has over 15 years of computing experience including developing one of the earliest commercial object-oriented database systems and real-time data acquisition and control systems. While he has broad interests in the use of informational interventions to modify physician behavior, development of rule-based systems to implement guidelines or protocols has been a major focus of Dr. Overhage s research for the last 10 years. Using these tools, he has completed a number of large-scale studies of implementing guidelines in the outpatient and inpatient settings that examine the impact of process measures, costs and patient outcomes. His current efforts in this area include developing and testing handheld point of care computing devices to deliver decision support and information to providers at the point of care. His other major research area has been the implementation of a city-wide electronic patient record system for Indianapolis, IN.Working with Dr. Clement McDonald, one of the pioneers of medical informatics, they have created an electronic patient record containing data from many sources including laboratories, pharmacies, and hospitals in the city, accessed by emergency room and primary care providers.the system currently connects 10 major medical surgical hospitals in central Indiana and includes inpatient and outpatient encounter data, laboratory results, immunization data and other selected data. Dr. Overhage is a Fellow of the American College of Medical Informatics. He received the Davies Recognition Award for Excellence in Computer-Based Patient Recognition for the Regenstrief Medical Record System and served as Scientific Program Chairman for the 2000 AMIA Fall Symposium. Dr. Overhage received his BA, with High Honors, in Physics from Wabash College and his PhD in Biophysics and MD from Indiana University School of Medicine. Dr. Overhage was a resident in internal medicine, a medical informatics and health services research fellow and then Chief Medical Resident at the Indiana University School of Medicine. Appendix 4: Expert Panel Biographies 159

168 Scott S. Young, MD, FAAFP Director for Health Information Technology, Agency for Healthcare Research and Quality Scott S.Young, MD is a board-certified family physician. Dr.Young currently serves as the Director for Health Information Technology initiatives and research at the Agency for Healthcare Research and Quality (AHRQ). In this capacity he designs and implements national programs aimed at improving the quality, safety and efficiency of healthcare via strategic utilization of health information technology. Prior to joining AHRQ, he served as a Senior Clinical Advisor in the Centers for Medicare and Medicaid Services Office of Clinical Standards and Quality. Dr.Young was instrumental in the design and implementation of national quality and safety programs including hospital public reporting, integration of health information systems, and linking payment policy to quality and performance measures. He served in the office of Senator Jeff Bingaman as a Robert Wood Johnson Health Policy Fellow. In that capacity, Dr. Young advised the Senator on a number of issues including Veterans Affairs, Medicare, health workforce, national prescription drug policy, bioterrorism and improving the public health infrastructure. He is the former executive vice president of the Utah HealthCare Institute, a not-forprofit organization providing clinical care, outreach programs, medical education, research, informatics, and health policy services. He was a key member in the creation of the organization and developed its health policy division. Dr. Young is a founding member of Intermountain Health Care s Utah Valley Family Practice Residency. In both these capacities he crafted and established community outreach and policy programs aimed at improving medical care for the elderly, poor and disenfranchised. He continues to see uninsured patients on Mobile Med in Montgomery County weekly and teaches at the George Washington University School of Medicine. Dr.Young is a recipient of the Mead-Johnson Research Award and the 2000 American College of Physician Executives/Modern Physician Award of Excellence. Dr.Young received his MD from the University of Oklahoma and completed his training at the Fairfax Family Practice Residency. He is a fellow of the American Academy of Family Physicians. 160 The Value of Healthcare Information Exchange and Interoperability

169 Kepa Zubeldia, MD President and Chief Executive Officer, Claredi Corporation Kepa Zubeldia, MD is President and Chief Executive Officer of Claredi Corporation, the nation s first commercial provider of HIPAA EDI compliance testing and certification services for payers, clearinghouses, vendors and providers. Dr. Zubeldia founded Claredi in October of 2000 to create a trusted healthcare testing and certification service which would expedite the broad acceptance of EDI standards for the benefit of the entire healthcare industry. Dr. Zubeldia has been intimately involved with healthcare EDI for the past 22 years, and has participated in a number of industry bodies. His current positions include Co- Chair of the Security Policy Advisory Group of the Workgroup for Electronic Data Interchange (WEDI), and he was immediate Past-Chair of the Association for Electronic Healthcare Transactions (AFEHCT). In 1999, Dr. Zubeldia led the Internet Security Interoperability Pilot, sponsored by WEDI and AFEHCT. In 2002, Dr. Zubeldia received the Ed Guilbert E-Commerce Professional Award, and the Leadership in Technology WEDI Award. In October of 1999, he was appointed to the National Committee on Vital and Health Statistics (NCVHS), the committee that advises the Secretary of HHS on the Administrative Simplification aspects of the Health Insurance Portability and Accountability Act (HIPAA). Dr. Zubeldia received an MD from the Universidad de Bilbao, Facultad de Medicina, now called University of the Basque Country, Bizkaia Campus, in Spain. Appendix 4: Expert Panel Biographies 161

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171 Index CITL This index is designed to help the user easily locate topics of interest.when the letter f follows a page number, it indicates that the term is located in a figure; the letter t indicates that the term is located in a table. B Biographies Brailer, David J., 153 Braithwaite,William R., 154 Carpenter, Paul C., 155 Friedman, Daniel J., 156 Miller, Robert H., 157 Milstein, Arnold, 158 Overhage, J. Marc, 159 Young, Scott S., 160 Zubeldia, Kepa, 161 C Center for Information Technology Leadership (CITL), 1 Clinician, 18 Community Health Information Network (CHIN), 8 Computerized provider order entry (CPOE), 7 E Electronic health record (EHR), 7 Expert Panel, 19 20, , See also Biographies H Health Insurance Portability and Accountability Act (HIPAA), 4, 8 Healthcare Information Exchange and Interoperability (HIEI), 1 analysis limitations, 5 6 benefits of, 1 4, 133 between providers, 3 and independent laboratories, 2 and payers, 4 and pharmacies, 3 and public health departments, 4 and radiology centers, 2 costs of, 4 5, clinical information systems and interfaces, cost model limitations, national cost projection, sensitivity analysis, f, 107t systems components, expert interview guide, functionality, national implementation of, 133 net value of, 5, all providers, benefit realization schedule, 123t of fully implemented HIEI, of level 4, 120 national net value, 113, 114f 115f per provider group or hospital, 109, 110f, 111 sensitivity analysis, 115, 116f, 121f, 126t 127t, 129t 130t stakeholder net value, projection limitations, scope of analysis, standardized information exchange, taxonomy levels, 13 14f, value levels, 1 Healthcare IT Value Framework, 137 Hospital clinical system cost, I Information exchange non-standardized, Index 163

172 standardized, Information technology (IT) benefits of, 9 financial, 9 healthcare costs, 9 improvement in patient safety and clinical quality, 9 patient access to records, 9 reporting of communicable diseases, 9 challenges to, 9 10 interoperability, 8 10 need for, 7 8 Interface cost, 97 Interoperability between outpatient providers and laboratories, 2, See also Laboratories between outpatient providers and pharmacies, 3, See also Pharmacy services between outpatient providers and radiology centers, 2, See also Radiology centers between providers, 3, chart request costs, 59 61, 65t HIEI levels, 57f 58 model of, 57f national benefit projection, provider benefit projection, referral costs, referral request costs, 59 sensitivity analysis, 62, 65t between providers and payers, 4, claims and collections, exchange of administrative data, HIEI levels, 80f and hospitals, and Medicare/Medicaid, model of, 80f national benefit projection, and physician offices, sensitivity analysis, 86, 94t between providers and public health departments, 4, See also Public health department L Laboratories and interoperability benefits, 2, administrative savings estimates, 23f costs and projected benefits, 22 esoteric tests, 21 HIEI levels, 22f model of, 21f national benefit projection, organizational and clinical benefits, provider benefit projection, sensitivity analysis, 26 27, 32t standardized information exchange, 134 Literature review, 138 Literature search strategy, M Model building blocks, average provider panel size, average provider visit volume, 148 expenditure burden, 150 outpatient capitation rates, 149 projection limitations, 147 O Office clinical system cost, 96 P Payers. See Interoperability, between providers and payers Payer-provider cost, 99 Pharmacy services and interoperability benefits, 3, and access to pharmacy records, 53 and formulary compliance, 53 HIEI levels, 48 medication management system, 49f model of, 47 national benefit projection, provider benefit, sensitivity analysis, 52, 56t standardized information exchange, 134 Projection Limitations, The Value of Healthcare Information Exchange and Interoperability

173 Provider size categories, 17f, 147 Provider-provider connectivity, 3 Provider-stakeholder relationship model, 16f benefit source, 18 sensitivity analyses, 18 Public health department and interoperability benefits, 4, and bioterrorism, 73 and data collection, 72 disease reporting, HIEI levels, 68f model of, 67f national benefit projection, sensitivity analysis, 71, 77t syndromic surveillance system, 72 standardized information exchange, 134 R Radiology centers and interoperability benefits, 2, administrative savings estimates, 36f,43t costs and projected benefits, HIEI levels, 34f model of, 33f national benefit projection, patient safety improvement, 40 provider benefit projection, scheduling improvement, 41 sensitivity analysis, 39 40, 46t standardized information exchange, 134 S Software model, 140 Stakeholder, 18 net value during HIEI rollout, Stakeholder interface cost, 97 Standards development, 135 Index 165

174

175 CITL Advisory Board Russ B. Altman, M.D., Ph.D. Erica L. Drazen, Sc.D. Bruce A. Hochstadt, M.D. Sam Karp Joseph P. Newhouse, Ph.D. David B. Pryor, M.D. Edward H. Shortliffe, M.D., Ph.D. Paul C. Tang, M.D. This work was developed with generous support from:

176 About the Book The Value of Healthcare Information Exchange and Interoperability (HIEI) examines the impact of the electronic flow of healthcare information and its role in improving patient safety and quality of care. This book explains why we must achieve seamless interoperability among vital sectors of the U.S. healthcare delivery system. Included are the following: Explanation of HIEI benefits for providers, payers, independent laboratories, radiology centers, pharmacies and public health departments; Comparison of benefits and costs of different levels of HIEI sophistication; Projections of HIEI value to individual providers, other organizations and the nation as a whole; and Clear and concise explanations of value calculations and the evidence upon which they are built. About the Center for Information Technology Leadership The Center for Information Technology Leadership (CITL) in Boston is a not-for-profit research organization chartered by Partners HealthCare System and supported by a strategic alliance with the Healthcare Information and Management Systems Society. Using a rigorous analytic approach, CITL assesses clinical information technologies and disseminates its findings to help provider organizations maximize the value of their IT investments, help technology firms understand how to improve the value proposition of their healthcare products, and inform national healthcare IT policy discussions. For more information, visit With Generous Support From: Partners HealthCare System. 93 Worcester Street. Wellesley, MA TEL FAX [email protected] WEB Cap Gemini Ernst & Young. Eclipsys Corporation. ehealth Initiative. IDX Systems Corporation. InterSystems Corporation. Misys Healthcare Systems. Siemens Medical Solutions Health Services ISBN: X Order Code: 429