MANAGED CARE September 1999. ©1999 MediMedia USA
This physician and his backers are making a $100 million bet that electronic patient records, and widespread access to them through the Internet, are not far away for most practices.
Mark Leavitt is well into his third career, that of health care technology executive. The CEO of MedicaLogic Inc., maker of electronic medical record systems, started his career with a doctorate in electrical engineering in 1976. He decided to move on to medical school, graduating three years later. As a practicing internist, Leavitt was appalled at the inefficiency of medical records and patient handouts, and so he started writing software on an Apple II Plus to streamline and automate those documents. After colleagues started asking for copies of the software, Leavitt started MedicaLogic in 1985 with $2,500, and ran it as a sideline to his practice. He's been with the company, which now has 210 employees, full-time since 1992. Today, thanks to the Internet, the company, which had revenue of $16.1 million last year, faces a transformation at least as dramatic as any undertaken by its founder. Leavitt spoke recently with Senior Contributing Editor Patrick Mullen about how the Internet could be the platform that finally propels electronic medical records into the mainstream of medical practice.
MANAGED CARE: Since you started the company in 1985, what have been the two or three most significant changes that have taken place, in health care and for your company?
MARK LEAVITT: Clearly, managed care is the most sweeping change that's occurred since then. I was on the board of the first IPA formed in Portland, Ore., so I'm quite familiar with the emergence of managed care. The company has been through a couple of major phases. First, we went out and got funded and started looking like a high-growth startup instead of the little bootstrap operation that I was running myself. In 1994, we brought in our first round of venture funding and we've been on Inc. magazine's 500 list of the fastest growing companies in the country every year since. The second major change was in the last six months, as we've recognized the power of the Internet to help us deliver our solution to health providers faster and much less expensively, and connect patients with their physicians and health systems.
MC: The last six months sounds a bit late to pick up on a potential of the Internet. When did you first become aware of the Internet and when did MedicaLogic realize that it was going to be an important tool?
LEAVITT: We were aware of the Internet back in 1994 and '95 when it started to emerge. We adopted the Internet in 1996 for KnowledgeBank, which is at Medicalogic.com and is our physician community for doctors who have adopted electronic records. There's always been an issue with doctors and electronic records. They don't want to be slowed down and they don't want to spend a lot of capital on them. In the last year or two, physicians turned the corner. Now, some 80 percent of them are on the Internet. That doesn't mean they're using it in their daily work; they are using it in some part of their lives, most of them from home, maybe for financial purposes or educational purposes for their children. Speaking from experience, physicians are trained to focus on day-to-day patient care. They never come up for air and think about how they could do things better, other than to learn new medical procedures and new medical research. They never think about how to be more efficient or how to improve customer service. They're taught in medical school that if they're spending time not taking care of patients they're goofing off.
MC: Yet you see that changing in part because of doctors' greater use of the Internet. How much of that growth is specific to doctors, or is it just part of broader trends?
LEAVITT: I would argue that more physicians have adopted the Internet than the general population. We know that the 'net is more highly adopted by people with higher incomes and more education, and that is the physician demographic.
MC: How concerned are you about the gap between those who have access to the 'net and those who don't? Isn't there a risk that you'll build this wonderful system that a lot of people won't have access to?
LEAVITT: You're talking about what the Commerce Department called the digital divide. We're very concerned about it. To help solve that problem, we will explore the opportunity to support any program that provides connectivity to people who would otherwise be disenfranchised, whether that means free PCs or relationships with organizations that serve people who don't now have access. One reason that we decided that the 'net wasn't a way to get to consumers a couple of years ago was that I was convinced that the people who most needed to connect — the elderly, the chronically ill, or the poor — weren't using computers. That's changing. For example, every library I've been in has lots of work stations that the public can use for free access to the Internet. Internet kiosks are becoming more common. Schools have them, and it wouldn't surprise me to soon see them in grocery stores or in the social rooms of churches. The benefits of the Internet can be delivered without cost to the individuals, through things like WebTV and other TV-style delivery systems. Web phones that include a screen are another interesting convergence. So I think it's safe to bet on the ubiquity of the web just as you can with the ubiquity of television. Radio took 30 years to reach half the population, and television took 18. The Internet took fewer than five.
MC: Why are electronic medical records taking so long to gain acceptance?
LEAVITT: For two reasons. One, it's much harder than people thought, because physicians are such busy professionals that they won't accept a solution that slows them down. Until a year or two ago, there were no products that were fast enough that a physician would be more efficient rather than less efficient. The second reason is due to the way health care is wired economically, not electronically. It's difficult to bring together a critical mass of entities that benefit from the electronic record and have them invest in it. Let's say that putting in an electronic record in a physician's office will benefit the patients, the physician, and the health plans. There are no losers in electronic records except for file clerks who chase down records. The problem is, who's going to pay for it? The physician doesn't have the capital to pay for it when half of the benefits flow to the health plans, hospitals, and patients. Health plans might be interested, but when any given doctor has only 10 percent of his or her patients in that health plan, why should a plan pay for the other 90 percent of the patients? Because of the way the industry is wired economically, you can't get something like this moving. So we've created a simpler product for physicians that does just what they need and leaves out some things that they don't need. We already had a complete comprehensive paperless electronic record, Logician, but it costs around $25,000 per doctor. Not all of that comes to us. A third of that is for hardware, a third is for consulting and training, and a third is for software and license fees. It pays for itself within a year or two, and we've proven that.
MC: How much of the privacy issue is perception versus technical security? People are perfectly comfortable putting money in a bank and having almost all transactions these days take place electronically. Yet there seems to be this hurdle about a medical record.
LEAVITT: The problem is much more one of perception than technology, but we're going to the limit on both. There was initial hesitancy to buy things on the Internet because people thought someone was going to steal their credit card numbers. That's going away now, as people realized that the Internet is more secure than giving your card to the waitress in the restaurant or throwing away the carbon copy of a charge slip. In health care, we will need to prove our credibility and trust to the public, and we're going just as far as you can possibly go to create a secure and private environment. You could say that we're betting the company on it.
MC: How will things change for patients whose records are electronic?
LEAVITT: As you leave the office you will see a poster on the doctor's wall that says, we've introduced AboutMyHealth.net, which is our code name. If you would like to access your records and communicate with your doctor over the Internet, ask at the front desk. You show the clerk your photo ID to prove that you're you, and so we're not giving access to someone else. You sign the equivalent of a records-release authorizing us to put your records on line. You choose a PIN number. From your browser anywhere, you log on to AboutMyHealth.net, and put in your password. It also uses digital certificates to make sure that you're you. Once in the site, patients see a message center that tells what messages they've sent to doctors and what messages they've received.
MC: What is a digital certificate and why is it important?
LEAVITT: It's a bit of data that's locked to your physical computer that nobody can copy. So if someone were to go to another machine and try to log on with your password, he couldn't. If you lost your password or told someone, he couldn't get on from another machine. You have to have both the digital certificate and the password. If you go to another computer and need to get on, it will challenge you with a series of questions besides your password.
MC: So I can now look at my medical record on line. Why am I going to want to do that? Most people are not in the habit of looking at their medical records. Most people have never seen their medical records.
LEAVITT: That's right, but there's more to it than that. You can look at your record in a readable form. It lists your diagnoses so you know what diagnosis the physician says you have, including risk factors and family history factors. It lists your active medications, and that's important because the main cause of hospitalizations in the elderly is medication errors. Think of taking care of your grandma who's on three or four chronic medications, or of being chronically ill with a condition where your medicines are sometimes changed and you need refills. You can request a refill by just clicking on it. You don't have to call the office and have them put you on hold or tell you they'll call you back once they pull your chart. Click on the medication you want refilled, the request goes to the office, where it is authorized and then sent electronically directly to an online pharmacy. The medicine could show up at your door the next day. You didn't have to leave your house, and the process is authenticated all the way through. You can also ask for an appointment without waiting to get through on the phone. You can do it in the middle of the night, from out of town. You can get on the 'net and ask for an appointment on Monday. They'll get that message in the morning. If possible, they'll make an appointment and send you back an E-mail. This isn't for emergencies, obviously; if you're having a heart attack, you dial 911 — you don't go on the 'net. But most visits are not quite that urgent. It's better for the physician's office to receive a set of queued-up requests than to take those phone calls, which come at unpredictable times and are always an interruption. I'd much rather work through a list of 10 people who want to be seen, and schedule them, than have to take those calls.
MC: What do you think needs to happen before electronic records are a standard? When will paper go away?
LEAVITT: It won't go away overnight. A lot of electronic systems make even more paper, and print out even better reports. With the low price that we can deliver using the Internet, I think that the curve now is going to turn up. Right now something like three percent of the doctors in the U.S. have electronic medical records. We have the biggest share, with about 3,500 doctors using it every day to take care of all their patients.
MC: Which shows how far the market has to go. What do you see as likely to happen in the managed care market over the next couple of years that would change the way you do business or change the way doctors and patients relate to each other?
LEAVITT: Managed care has to demonstrate how it can maintain choice while improving quality and controlling costs. It's focused on controlling costs but it's handicapped because the information needed to measure quality is locked up, scribbled in a bunch of paper charts. You can't sort out what's going on until the fundamental information is electronic. How can the grocery store know how many bananas to order if it doesn't know how many bananas are on the shelf and how much they cost? Health care doesn't know how many bananas are on the shelf. In the supermarket, the item gets scanned. They've automated the information. UPS gets a few dollars to deliver a package, and that information is automated. But we take care of patients and do surgeries for $50,000, but we don't know outcomes rates. It's ludicrous when you think about it. So we will have electronic information. Then managed care will have an interesting task of measuring quality, of paying more for high quality and less for low quality. We're going to see incentives for better service to our customers, like how many times you make them wait on hold when they call, how many days they wait for an appointment for this condition. Then managed care can help buyers find highest quality at lowest cost. I wouldn't want to try to deliver what managed care is asked to do right now without this information. They have claims data that comes out 30 days later and you know how inaccurate they are.
MC: How have the reasons doctors give for not adopting electronic records changed over the years?
LEAVITT: You used to hear, "I don't want to use a computer; I don't want to be a secretary." That's done. Every year, 15,000 new doctors graduate and every one of them had to use the web to get through college. Now what we hear is, "I want it but I can't afford it. I want it but I can't get my organization to make a decision. I want it but I don't have the people here to install the networks and the servers." So we've tried to break down all three of those barriers with the new Internet product.
MC: You've got a lot of employees and a large company now. You must look down the road and try to figure out what kind of system you expect to be working in. Is it your expectation that we're essentially in for several years of tweaking of what we've got?
LEAVITT: No. I think we're in for some major shifts, first because of the level of consumer unrest and demand, and second because of the political situation. Things like the Patients Bill of Rights haven't necessarily passed yet but are on the docket. From surveys of doctors and the talk of physician unions, I think we're at a time of great unrest.
MC: Is it clear what direction change will take?
LEAVITT: To me it's a race between whether medicine will become more organized around a series of larger entities, kind of like what Hillary Clinton talked about, or will break down into a lot of solo practices. We have solutions in either case, so we have two horses in the race.
MC: Do you think there's much chance that it would break down toward more solo practices? Everyone talks as though it's inevitable that physicians will be in groups of some size, even if they're not huge organizations.
LEAVITT: Most of those have failed. The physician practice management movement fumbled tremendously.
MC: And didn't take very long to do it.
LEAVITT: Hospitals bought up practices and formed vertically integrated networks. It's been published that, on average, they lose $50,000 to $70,000 per year for every physician that's an employee of a hospital or an integrated delivery network. Those practices were profitable before.
MC: Doctors who use your product or another electronic medical record can keep track of what they do. How does the way they practice medicine change?
LEAVITT: In a dramatic way. First, they know if the patient needs a Pap smear or a mammogram, and so their compliance rates with preventive measures go way up. They don't have to sit there and ask the patient, "Let's see, when was your last visit?" The nurse handles it before they even see the doctor. We typically see preventive care rates in clinics that use EMR double, and that's been documented in studies. So instead of trying to remember stuff, they can spend more time getting to know the patient and talking about important things. The data are organized and clear, and patients notice. Patients have written and said, 'It's about time you got a computer'. One came in with her son, and wanted to know if he was due for an immunization. Instead of being told that his record would have to be requested, the answer was a couple of clicks away. He was due, and it was handled right away. That's the kind of service they expect but have never gotten before. When a patient sees a doctor scribbling in a paper chart, that's about equivalent to seeing a rusty old bucket of tongue depressors. He starts to wonder if that doctor is up to date.
MC: Thank you.