HIE Revenue Model: Physicians Get Free Access By Joining A Purchasing Co-op

By Deborah Borfitz

July 20, 2018 | Health information exchanges (HIEs) have been actively promoted by policymakers as a way for providers to share data about patients to improve continuity of care and make the best possible treatment decisions. Studies have demonstrated their ability to reduce redundant tests and procedures, lower costs, and improve patient safety. Yet they have long had a money problem. When federal funding of public HIEs dried up a few years back, many were forced to shut down or quickly shift course.

Participation fees alone typically don’t cover operating costs so HIEs seek out additional sources of revenue, which often include federal and state grants, says Arun Sen, a professor in the Mays Business School at Texas A&M University who is studying the usefulness of different revenue models in sustaining exchanges. Multiple revenue streams are the norm and might include fee-based services for e-prescribing, clinical messaging, or claims processing.

One of the more unusual approaches is to create a group purchasing organization (GPO). For CriticalConnection, a 20-year-old HIE in Austin, Texas, joining an affiliated GPO—CriticalConnection Doctor Purchasing—is how providers gain free access to the exchange while enjoying deep discounts on everything from internet access to medical supplies and office furniture.

At last count, 234 HIEs were operating nationwide—and that includes private- and publicly-funded exchanges as well a great many intra-HIEs run by hospital systems and used solely by their affiliated providers, says Sen. Many of them are doing well. The largest ones take in several smaller states (e.g., New England Health Exchange Network) or are confined to a single larger state such as California or Texas.

It has never been particularly easy to interest physicians in paying for HIE access because it represents a direct expense for which they get no reimbursement, says Marlene Smitherman, CEO of CriticalConnection. “Meaningful use did require some very minimal exchange of data but never really got on board with HIEs and probably won’t until doctors are reimbursed on outcomes rather than fee-for-service.” Practicing independent physicians also tend to have trust issues regarding how their data will be used, which is why they’re generally excluded from hospital-based HIEs.

The shareholder base of CriticalConnection includes 320 investors, most of whom are physicians. Since the exchange was built with investment funds from doctors, they write the rules, says Smitherman. And they’re adamant that data in their burgeoning community health record—now containing over 1 million patient records—never, ever be held up for sale. “I have been contacted by pharmaceutical companies to buy our data and are willing to pay millions and every time I said no.”

CLN Smitherman

The community health record is deployed by the nonprofit CriticalConnection Health Foundation, and is a licensee of the software owned by CriticalConnection, Inc.

Great Savings And Service

How CriticalConnection came to launch CriticalConnection Doctor Purchasing as a wholly owned subsidiary of the HIE was “kind of a fluke,” which began with a staff member doing exploratory research on how GPOs work, says Smitherman. Creation of the membership-based cooperative brought together different sized physician clinics to gain volume-based negotiating clout with vendors. CriticalConnection Doctor Purchasing first reached out to Spectrum (then Time Warner, before its merger with Charter Communications), which viewed a business deal with the new entity as the way to grow its healthcare market penetration while contributing to a noble cause. It was a financially wise decision that today brings in $2.5 million annually, or about half of the GPO’s overall vendor spend. Other vendors, including Henry Shein and Office Depot, likewise liked that rebate revenue was indirectly benefitting patient care.

The “doing good” factor helped CriticalConnection Doctor Purchasing broker a commission rate with Spectrum that is “considerably higher” than the typical administrative fee most GPOs extract from vendors, says Smitherman. It’s also why Office Depot pays out a sizable bonus based on total clinic purchases, with others poised to follow suit. It doesn’t hurt that CriticalConnection Doctor Purchasing, unlike most other purchasing groups, makes new market share a certainty. “When we bring a clinic to vendors, all the selling is done.”

Members of the cooperative win big from a pricing standpoint on the goods and services they were buying anyway. Physicians save, on average, about 30%—and up to 50% on paper—plus product delivery is free. Clinics affiliated with rural nonprofit hospitals can access a 65% subsidy on high-capacity broadband connectivity through the federal Healthcare Connect Fund. The subsidy for one, 22-location federally qualified health center is more than $300,000 annually, says Smitherman.

The contract portfolio currently covers telecommunications (internet, phone, and cable), office products/furnishings, medical supplies and equipment, medical waste disposal, document shredding and transcription services, which includes an interface to the community health record for the 30% of physicians still using dictation and paper records. Another physician-pleasing feature is that every clinic in the co-op—even single physician offices—is treated like a $5 million customer.

The buyer base has grown to include 500 physicians at 270 clinics, and physicians literally never opt out—especially when one of the big carrots is free HIE access. Their only other option is to pay a monthly user fee of up to $150 per user. Clinic staff dictate what gets added to the contract portfolio. “We don’t want to go out and sell to vendors, but to give physicians a better option so they’ll move their business,” says Smitherman. “We’re currently working on a possible malpractice insurance solution.”

Expansion Plans

Revenues from CriticalConnection Doctor Purchasing are now being used to expand the community health record, in partnership with Austin-based Clinical Pathology Labs (CPL), to include a community-wide lab repository housing patients’ test results. The rollout begins in San Angelo, Texas, and other South-Central Texas communities this fall. The broader goal is for CriticalConnection to be linked to every clinic in Central Texas by the end of 2019. That adds up to about 5,000 physicians at 1,000 clinics, 200 of which are primary care offices.

Since CPL operates in eight states, and its parent Sonic Healthcare across half of the country, the partnership is opening doors for CriticalConnection to be a multi-state HIE, says Smitherman. Last year, CPL assisted in moving data exchange securely to the cloud, making it possible for CriticalConnection to deploy and manage the community health record from anywhere in the country.

In addition to Sonic, equity partners also include Austin Radiological Association, which is affiliated with 120 physicians and serves as the hosting partner of CriticalConnection.

The GPO revenue model could be replicated by other HIEs, provided they’re interested in running a GPO, says Smitherman, stressing “they are two totally separate businesses.” HIEs might seek grant funding to build a revenue-generating GPO, or partner with one of the large GPOs to financially buoy the exchange until the regional purchasing program is fully operational. CriticalConnection is also open to the idea of partnering with struggling HIEs, she adds, although they tend to view one another less as peers than competitors.

New Partners?

For physicians, the appeal of HIEs has always been having more of the information they need to tailor care to patients’ unique medical needs. CriticalConnection provides this linkage once they’ve opted into the purchasing program and registered patients via their practice management system. Primary care physicians are no longer getting one-off calls from referring specialists looking for a lab or imaging report, and multiple encounter notes can all be found in one place.

“All this rich data is just sitting in the database and mining it for the right reasons is very definitely doable,” says Smitherman. She is in preliminary discussions with a few accountable care organizations about possible opportunities around data analytics, as well as several health systems that may want to join the purchasing cooperative. With Amazon now nipping at their heels, she suspects other GPOs may also be interested in exploring a partnership to better align with community-based physicians.


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