Understanding the Market for Physician Practice Management (PPM) Systems Support
(Originally published in the February 1998 issue of AFSMI's The Professional Journal.)
By William K. Pollock
The rapidly changing healthcare market is placing individual physicians and group practices under tremendous pressure, especially from Managed Care Organizations (MCOs), to change contractual arrangements and billing approaches, reduce costs and, in many cases, to assume risk. As a result, the needs and requirements for comprehensive Physician Practice Management (PPM) systems are becoming more complex, and the demand for state-of-the-art, cost-justified systems and services also continues to grow stronger. Most industry analysts predict increased competitive pressures in an already consolidating market and, as such, a detailed understanding of the support needs and requirements of this fast-growing and increasingly cost-conscious segment is required by any and all organizations that plan to provide services to this attractive market base.
A. Market Background
The managed care outpatient environment is the fastest growing segment of the healthcare industry, with approximately two-thirds of physicians performing under some form of managed care program. This segment is expanding by at least 5% per year as leading practices continue to consolidate in order to offer additional services under the managed care system. Concurrently, the market for electronic medical records is becoming enormous, with physicians becoming increasingly mobile and requiring stronger support from their more advanced and flexible computer systems.
The new charter of the healthcare industry, which now represents more than one-sixth of the gross domestic product, focuses on the ability to provide better quality healthcare while reducing both enterprise and patient costs. To achieve this goal, most healthcare enterprises have shifted away from the use of historically expensive inpatient care to a more cost-efficient mode of outpatient procedures and practices. Healthcare enterprises have transferred many of the procedures historically provided in the hospital to physician and group practices, essentially moving extended care out of the hospital and into the home. This shift in the location of care also requires that patient records become more complete and accessible, available at multiple sites, as well as to multiple service providers.
Similarly, managed care relationships initiated by Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) have changed the way healthcare services are provided, acquired and reported. The family doctor and recommended fee-for-service specialists have been replaced by a healthcare system comprised of large, changing networks of providers and delivery systems. Patients often see different providers on different visits, and are limited in which specialists they can see, and when. Since each new provider treats the patient as being new to the enterprise, it also creates a new patient chart and re-tests, questions, and studies the patient's medical history in order to provide the proper treatment. These repetitive activities are not only costly, but also bothersome to the patient.
However, in order to successfully provide low-cost treatment, the managed care environment really requires only a single patient file or chart to be instantly accessible throughout the healthcare enterprise. Just as importantly, the enterprise continues to require comprehensive data for all of its patient population with respect to outcomes analysis and utilization reviews. Too much data is not the problem, although too much repetitive data ultimately leads to increased costs of database generation, management and maintenance.
Even in today's environment, the seamless integration of new systems and procedures into a physicians group practice or clinic is difficult due to the lack of an existing orderly process flow, compounded by an abundance of undocumented, complex, cumbersome and outdated manual processes. Additionally, introducing a system into this clinical environment inevitably causes significant change in the enterprise's overall operations and communications and, as such, can become quite disruptive. For many practices, existing policies and procedures need to be re-evaluated and/or changed, and the perceived disruption that would accompany any new system will be an important consideration to recognize and manage for both the vendor and the healthcare enterprise.
It is also important to remember that most physicians and clinicians have never regularly used a computer as part of their work and are reluctant to change their existing ways of working. However, once they do, they tend to depend on these systems more than ever to virtually run their entire office - and business - operations and, as such, cannot afford to experience any noticeable disruption or measurable downtime. It is estimated that more than 80 percent of medical facilities in the United States today use computers in the office. However, overall user satisfaction remains fairly low, and the least satisfied users typically tend to be the office managers. Only about one-half of physicians use these systems directly, while the remainder rely on their staffs to make all data entries and generate reports.
B. Physician Practice Management (PPM) Systems and Technologies
Physician Practice Management (PPM) systems (Figure 1) are used to automate a wide variety of the clinical and clerical functions associated with running an individual physician's office or a physicians group practice. In many cases, group practices today may be nearly as large as small hospitals, comprising as few as two or three, to as many as 30, 60, 90 or more physicians, all under one roof, or at multiple sites.
The "core" elements of a practice management system typically include at least the following:
A large medical center could require a PPM system to support 200,000 or more patient cases annually, and have more than 100 office workers and up to 100 clinicians who will be using the system. The most critical functions managed by the system are likely to include patient registration, appointment scheduling and patient billing. Other important functional considerations typically include accounts receivable, cashiering, contract management, third-party billing, general ledger, payroll and medical records. For most physicians' offices and group practices, the standardization of their managed care data collection and reporting is integral to their operational strategy.
Increasingly, PPM systems are being developed to interface with Computerized Patient Record (CPR) systems in order to provide physicians and group practices with truly integrated systems that manage not only patient records, medical reports, scheduling and administrative functions, but the entire practice, as a business. To this end, many vendors that have historically offered only PPM or CPR systems are now offering both, or at least partnering with other vendors that can complement their more narrowly focused product lines.
From the patient's perspective, many of the services and procedures that had historically been performed at a hospital, can now be performed at a more conveniently located medical facility. From the physicians' perspective, they now have more control over their own practices, including such key areas as practice management, financial management and general business autonomy. However, from the services providers' perspective, the individual physician and group practice segments represent clearly defined, fast-growing, technology-oriented, equipment-populated segments generally willing to pay for premium levels of service and support.
Most practice management systems grow from basic business needs. Such systems emphasize patient billing, accounts receivable and insurance reconciliation. Treatment and chart information is typically added later in a system's development cycle. Many currently available PPM systems are built on commercial database systems accessible via client/server computing. PPM products based on Oracle or Sybase relational databases with access systems created with tools such as Visual Basic and PowerBuilder are also quite popular. Companies like IBM have also introduced systems that feature an artificial intelligence program that checks for patterns indicating fraud.
Physicians and group practices have also become increasingly involved in interfacing with insurance systems, managed care systems and health maintenance organizations (HMOs). As a result, PPM systems have also begun to follow suit, offering such key features as:
C. Physician Practice Management (PPM) Systems and Support Vendors
There are dozens of Physician Practice Management (PPM) systems providers currently operating in the marketplace, ranging from those which may be characterized as large, national - even international - manufacturers and support organizations, to smaller, niche-oriented, specialized vendors. Some focus primarily on the PPM systems market, some focus primarily on CPR or related systems and, increasingly, some offer total practice management and related business application systems and support to a wide variety of healthcare organizations. Still, the majority share of installed PPM systems today are most provided by less than a dozen individual vendors.
However, the PPM service and support market is somewhat more wide open as not all of the leading PPM product vendors also have the capability to directly service and support their complete product lines. Especially in cases where the PPM systems are integrated with another vendor's Computerized Patient Record (CPR) systems, or other medical/business management systems, the ability for a single systems vendor to provide total enterprise support becomes even more difficult.
For these reasons, many PPM systems vendors have entered into strategic partnerships and arrangements with reputable services organizations that both understand the medical/healthcare markets in which these systems are being used - particularly the group practice and physician's office segments - as well as having the experience and expertise required to support the specific types of equipment upon which these systems operate. These services organizations must also have in place the necessary infrastructure, staffing and geographic capabilities to provide users with nationwide on-site field support as well as assistance via telephone help desks/hotlines and, increasingly, self-help via the Internet.
D. PPM Systems and Equipment Service Needs
In order to run a PPM system in a large physician's office or group practice, the system requirements can become quite large. The primary requirements of a fully implemented and maintained PPM system can include anything ranging from (Figure 2):
System Design and Engineering
Solely for the hardware systems and equipment required to operate the PPM and related applications, costs may range from more than $100,000 for a small outpatient clinic (less than 10 physicians) to more than $500,000 for a 30-physician group practice. Assuming all new systems and equipment, a large group practice can easily spend more than $1 million for a complete, state-of-the-art system.
The cost of the software initially required to run the PPM system can range from $80,000 or more for a small outpatient clinic (less than 10 physicians), to more than $500,000 for a 30-physician group practice, including all applicable user licenses. The annual costs for services maintenance contracts for both the PPM hardware and software can add an additional $25,000 or more for a small outpatient clinic, to more than $100,000 for a large group practice.
In addition to these costs, various other costs must also be considered, including those relating to system implementation (which may range from $15,000 up to $100,000, depending on the size of the practice), and custom integration/interface to other related healthcare applications (i.e., CPR and/or other proprietary software) which could add $50,000 or more in one-time costs, and $10,000 or more in annual maintenance fees. Clearly, the costs of procuring, installing and maintaining these systems are not a trivial consideration for a physicians practice of any size, type or specialty.
Again, using the 30-physician outpatient group practice as an example, it is not unlikely for such a practice to pay between $1.0 million and $2.0 million or more in total first year costs for system hardware and installation, software licensing and training, first-year maintenance, integration services and first-year integration maintenance. Total annual costs after the first year would then include hardware and software maintenance, continuing integration maintenance costs, and ongoing user training and help desk support.
E. Opportunities for Strategic Service Partnerships
Opportunities in the PPM services market are not restricted only to those services providers that have already firmly entrenched themselves in the physician's office and group practices segments. Since many of today's PPM, CPR and other related healthcare systems vendors are either small, niche and/or start-up companies, or smaller divisions of large healthcare conglomerates, they may be unequipped, understaffed or uninclined to provide customers with direct service and support in such key areas as systems installation, hardware maintenance and repair, or anything else not relating to the support of their own proprietary software.
These are the areas where strategic service partnerships become most important - and most attractive - to organizations that have an established portfolio of state-of-the-art services capabilities, supported by a national infrastructure for services delivery, and with a flexible enough organizational structure to allow themselves to seamlessly "blend in" with the systems vendors whose customers they will be supporting. The PPM systems vendors may not have their own services capabilities, but their customers still want total customer support. For this reason, it often takes a partnership to support the customer base with everything they will require.
No longer do all of the attractive and lucrative medical/healthcare services opportunities come from the traditional hospital market segment. In today's environment where the densities of medical equipment and computer-based PPM systems historically found in small-to-medium-sized hospitals are now found in physicians group practices located all over the country, the best opportunities may be right in your services organization's own backyard, intermingled among the rest of your existing customer base. It would be a mistake to write off the individual physician's office or multiple physician group practice simply because they do not reflect the same "caché" as the historical hospital client. The way in which the medical/healthcare market has been evolving, they may be even better customers for your organization in the long term.
William K. Pollock is President of Strategies For GrowthSM, a Westtown, Pennsylvania USA-based consulting firm specializing in business planning, customer service and customer satisfaction research. He may be reached at 610-399-9717 or via e-mail at firstname.lastname@example.org.
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