Did CMS just freeze the EHR market?

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Big news from this week’s J.P. Morgan Healthcare Conference in San Francisco: Acting CMS Administrator Andy Slavitt announced that the Meaningful Use (MU) program of EMR incentives would be replaced as part of the upcoming implementation of the broader Medicare Access and CHIP Reauthorization Act (MACRA) that was signed into law last year.

Everyone in the industry knew that CMS was working on the MACRA implementation, but most had assumed MACRA’s mandate that CMS measure “Meaningful Use of Certified EHR Technology” would mean a continuation of the existing MU program while providers and vendors would focus on supporting the Act’s other three performance areas: Quality, Resource Use, and Clinical Practice Improvement Activities.

Let’s break down some of the themes in Slavitt’s JPM keynote:

The Meaningful Use program as it has existed, will now be effectively over and replaced with something better. Since late last year we have been working side by side with physician organizations across many communities — including with great advocacy from the AMA — and have listened to the needs and concerns of many. We will be putting out the details on this next stage over the next few months, but I will give you a themes guiding our implementation.


For one, the focus will move away from rewarding providers for the use of technology and towards the outcome they achieve with their patients.

In other words, MU was wrong to focus on technology adoption rather than improving patient outcomes. It’s no secret that physician satisfaction with current EHR offerings is extremely poor, and we should not overlook the AMA’s headline role in defining the MACRA implementation.

Second, providers will be able to customize their goals so tech companies can build around the individual practice needs, not the needs of the government. Technology must be user-centered and support physicians, not distract them.

Current EHRs are not user-centered enough and end up distracting physicians. It seems that CMS is looking for a greater ability to customize the user experience in order to fit the workflows of individual users and practices.

Third, one way to aid this is by leveling the technology playing field for start-ups and new entrants. We are requiring open APIs in order to the physician desktop can be opened up and move away from the lock that early EHR decisions placed on physician organizations so that allow apps, analytic tools, and connected technologies to get data in and out of an EHR securely.

To paraphrase Slavitt’s argument, the physician user experience is poor because physicians don’t have the ability to choose solutions that work best for them individually. Their choices are limited because there are few EHR vendors. There are few EHR vendors because switching costs are high once a system is installed, and switching costs are high because there are no open APIs that allow data to move in and out of EHRs. So CMS will mandate open APIs in order to create more choices for physicians that offer a better user experience.

And finally, we are deadly serious about interoperability. We will begin initiatives in collaboration with physicians and consumers toward pointing technology to fill critical use cases like closing referral loops and engaging a patient in their care. And technology companies that look for ways to practice “data blocking” in opposition to new regulations will find that it won’t be tolerated.

These are strong words that threaten strong action against vendors who refuse to play nice. But how far will CMS go in penalizing these vendors? Will CMS de-certify their systems and risk the wrath of the providers who are their customers? Will CMS have the ability to fine non-cooperative vendors directly? Will the government consider these vendors to be anti-competitive and turn loose the DOJ?

In summary, if the EHR vendors won the day in the passage of the ARRA/HITECH act that created the Meaningful Use requirements, it’s clear that CMS is tilting toward the AMA and the interests of physicians this time around.

But how will the market respond?

While Slavitt’s direct signaling of these imminent changes is a welcome departure from the opaque way that CMS handled the recent ICD-10 transition and the original MU requirements, the sheer magnitude of these changes coupled with the ambiguity that the market will experience “over the next few months” will cause disruption on many fronts:

  • Providers will, at the margin, be less likely to make significant investments in new technology that touches the EHR or any of the broad categories like patient engagement that Slavitt mentioned in his speech. Most providers organizations have chosen to implement fully-integrated EMR systems as the most direct path to MU certification, and each of these providers will likely wait to see how their EHR vendor responds to the MACRA requirements before making any further commitments.
  • Most EHR vendors are not going to be happy that CMS has moved the goalposts after they have spent the past 5+ years singularly focused on MU compliance. This was an easy strategy for the EHR vendors to follow in the short run, but it delivered products with a poor user experience, poor differentiation, and a poor value proposition apart from qualifying customers to receive their MU money. After so many years of simply riding the MU requirements train, most EHR vendors now lack the organizational capability to differentiate themselves, to define a compelling value proposition, and to create a delightful user experience. Many of these vendors are still supporting multiple legacy EHR products that they have acquired throughout the years — it was more cost-effective to implement the MU roadmap on top of these legacy architectures than to integrate them and achieve MU. But these architectures were never designed to be open in the way Slavitt describes. Smart EHR vendors will spend the next few months evaluating their portfolios, their organizational capabilities, and creating strategies and models for how to succeed in the post-MU world.
  • For most non-EHR technology vendors, the past year was a good one as providers finished their MU certifications and began to redirect their IT budgets elsewhere. These non-EHR vendors will have a lot to gain over the next few years if CMS succeeds in implementing the vision that Slavitt described. However, they will likely experience some short-term pain as providers wait for direction from their EHR vendors who in turn will be awaiting direction from CMS and formulating their own strategies. Smart non-EHR technology vendors will seize the opportunity to establish thought leadership and align influential provider organizations behind their vision for patient engagement, closed-loop referrals, etc.
  • Finally, there will be tremendous opportunities for entrepreneurs over the next few years. CMS is clearly tilting the playing field in their favor, and record amounts of venture capital have flowed into digital health startups over the past few years. Smart entrepreneurs will seize the opportunity to lay out their vision for investors while the incumbents are figuring out what to do next.

CMS may have frozen the market this week when it signaled the end of Meaningful Use, and this announcement will impact almost all healthcare technology companies in the short run. But this change represents a tremendous opportunity for vendors to create growth by defining a compelling value proposition, creating clear competitive differentiation, and delivering a better user experience to align with this new reality.

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