Can Computers Cure Health Care? Kaiser Permanente, the nation's largest HMO, is betting $1 billion that information technology can help doctors practice better medicine.
By Erick Schonfeld

(FORTUNE Magazine) – Experts still debate whether computers really save time and money. But Dr. Neal Kaforey, emergency-room chief at a Kaiser Permanente clinic in Cleveland, says there's no doubt they can save lives. As proof, he nods toward a smiling patient sitting up in bed. The man was wheeled in yesterday with a heart attack. One of Kaforey's colleagues was about to give him a heart drug called a beta blocker, but first the doctor checked the man's medical records on a computer terminal in the ER. It revealed he was severely allergic to the drug. If that tidbit had been tucked away in a paper file at a doctor's office instead of instantly popping up on the screen, says Kaforey, "he'd be dead."

For most of us, such seamless delivery of vital statistics isn't an option. Our medical data are buried in bulky paper files that typically require hours or days to be passed from one doctor to another. That contributes to countless hassles, wasted hours, and errors. "Nearly a third of things we do to patients are not needed," says Robert Brook, a health professor at the University of California at Los Angeles. "And a third of things they need they don't get."

Few HMOs have focused heavily on quality issues. "Managed care is a fiction," maintains Dr. Earl Steinberg, a health-care-quality consultant with Covance, a clinical-research company. "We don't have managed care. We have managed price."

But revolutionary change is afoot. HMOs now cover some 67 million Americans, and their competition for patients is growing ever fiercer. In saturated markets, offering low-cost care is no longer enough to give an HMO an edge--it must also distinguish itself as a provider of high-quality care. That in turn is contributing to major investments in the computerization of medical records--the new systems are essential both to help HMOs provide better care and to compile data to prove it. Hambrecht & Quist analyst Stephen Fitzgibbons estimates that the health-care industry spent $15 billion on information technology last year. By 2001 he expects such spending to nearly double. "The lion's share of that today is in administrative and financial systems, but the clinical area is the fastest-growing," Fitzgibbons says.

Kaiser, the country's largest HMO, is one of the trend's leaders. Over the next five years the not-for-profit organization plans to pour about $1 billion into a national clinical-information system. Kaiser wants to electronically link its 10,000 doctors, as well as nurses and other care providers, in 19 states. It eventually will keep medical records for all nine million of its members in a standard digital format. CEO David Lawrence considers the pioneering computer system to be Kaiser's key national priority: "It will be the central nervous system for bringing together all the elements needed to take care of patients, and it will do so in ways currently unimaginable."

He'd better hope so. Last year Kaiser lost a staggering $270 million, on revenues of $14.5 billion. Like other HMOs, Kaiser was caught with medical costs that rose much faster than its premiums. If it can prove that it is delivering better care, Kaiser could more easily charge higher premiums.

Of course, deploying vast computer systems is risky, as shown by the recent financial meltdown at Oxford Health Plans after a new billing system ran amuck. But many HMOs may soon have little choice. Some of their biggest customers, including General Motors and Xerox, already are ranking health plans by cost and quality, and giving employees financial incentives to choose the best. Within a few years, HMOs that can't offer the advantages of systems like Kaiser's will find it more difficult to win favorable rankings. A computer that reminds doctors to prescribe aspirin for cardiac patients, for instance, could avert heart attacks, keeping patients healthier and warding off costly emergencies. Says Bruce Bradley, GM's director of health benefits: "Improved care gives us the best cost at the end of day."

Kaiser hopes to roll out basic elements of its new system to all its regions by 2001. About half of its 13 regional centers already have tinkered with such systems--the ones in Cleveland and Portland, Ore., in particular, provide glimpses of how the national version is likely to work.

Cleveland's project is overseen by Dr. Allan Khoury, a practicing physician who enthuses about his computer system as if it were a breakthrough medical study. When he started cobbling it together in 1991, he faced two main problems: First, he had to link all the pieces of clinical information about patients--laboratory, X-ray, pharmacy, and physician dictation data--that were stored in mainframe computers throughout Ohio. Then he had to electronically capture information generated in doctors' offices, which traditionally was recorded only on paper.

The latter problem proved the thorniest. A patient's medical "chart" typically consists of fat folders of paper inscribed with doctors' hieroglyphic scrawls, including notes on everything from vital signs to currently prescribed drugs. Khoury encountered resistance by doctors, who didn't want to take on the data-entry chores needed to maintain charts in digital form. Many doctors also feared that if they were fiddling with computers while interacting with patients, they would wind up paying more attention to the machines than to their sick charges.

So Khoury settled on a compromise: He got rid of paper charts but not of paper. When a patient comes in for a visit, the system automatically prints out a packet summarizing traditional chart information. The doctor writes notes, as usual, on the paper and also checks off items on a computer-readable list to show which procedures were performed--the options include things like common immunizations. After the patient leaves, digital images of his updated paper records are stored in a database. Ironically, notes Khoury, "the paper intermediary has been the key to breaking down physician resistance."

Khoury's system has had clear benefits for patients, partly by helping ensure they don't fall between the cracks. For instance, it asks doctors to rank the risk that each diabetes patient faces of having a leg amputated. Those at elevated risk are automatically referred to Kaiser's podiatry department, where a nurse teaches them how to take care of their feet. Diabetic amputations among Kaiser patients in Cleveland have dropped by about 20%.

Khoury's counterpart in Kaiser's Portland operation, Dr. Homer Chin, says that giving doctors a "total picture of the patient" from all of the HMO's departments is a key to improving the quality of care. Dr. Steve Gordon, an internist at a Kaiser clinic in Portland, says he got hooked on Portland's computer system for just that reason: It lets him get instant updates of everything going on with his patients. "We don't have to wing it anymore," he says. The system also fosters more cooperation among doctors caring for the same patient.

Kaiser's Portland system, like the one in Cleveland, reminds doctors when their patients are due for, say, mammograms. And it helps prevent emergencies. Care manager Denise McKnight, for example, follows up with all Kaiser members whom the system identifies as having recently been released from a local hospital emergency room--a job she describes as "making sure patients don't get lost in the shuffle." On the day after Christmas last year, she phoned an 87-year-old woman at home who was just out of the hospital after a spine injury. McKnight learned that the woman was unable to take her medications properly or look after herself--and that the only person available to help was her sick 92-year-old sister. By the end of the day, McKnight got the woman admitted to a short-term nursing facility.

Such cases have helped win over the approximately 700 doctors who use the system. Barbe West, Chin's boss, says early surveys showed that many of the doctors didn't like it at first, "but now they wouldn't know what to do without it." The effort to change their minds, she adds, required a lot of handholding, as well as getting the doctors heavily involved in refining the system. It doesn't rely on paper as the Cleveland system does--the Portland physicians actually use keyboards and computerized menus. A physician-friendly format enables doctors to quickly enter diagnoses into a database, then type in more detailed notes. Alternatively, doctors can dictate notes that are later transcribed by outside data clerks.

Terminals are usually placed in offices rather than exam rooms, partly because of confidentiality concerns--bored patients waiting by themselves can get nosy. Some of the Portland doctors also have started a pilot program with wireless laptops, which give them access to the system wherever they are in their clinics.

Doctors use the system to help with several chores besides entering and monitoring patient data. To bone up on recent research, they tap into Medline, a massive federal database of medical-journal abstracts available through the Internet. Soon they'll be able to search the entire contents of 28 medical textbooks on subjects ranging from obstetrics and pediatrics to psychiatric disorders. They also can order lab tests, referrals, or medications directly from their keyboards. After appointments with their doctors, patients receive printouts with written instructions detailing the tests or drugs they need. Gordon says some patients have collected their after-visit summaries in binders at home--do-it-yourself medical charts.

The system helps keep doctors mindful of cost-effective treatment guidelines as they make decisions. When a physician enters a prescription for the antidepressant drug Zoloft, a note pops up on his screen informing him that the drug is twice as expensive as similar medicines. He can still prescribe Zoloft, but the number of new prescriptions of it has been halved.

Patients like the system because it saves time. For example, they can send requests for prescription refills to their doctors over the phone or the Internet. Their doctors can then enter the refills into Kaiser's computer system, which automatically conveys the information to the HMO's pharmacy. The drugs are mailed to patients' doorsteps within two working days.

For its national system, Kaiser is combining features from a half dozen or so of the regional ones. "Kaiser nationally wants it all," says Khoury. The rollout is scheduled to begin in October in California, Georgia, and Hawaii. On top of its $1 billion price tag, Kaiser expects to spend more than $500 million to maintain and upgrade the existing regional systems.

With nine million covered lives, Kaiser arguably has the largest repository of patient information in the country. To hold all the data, it will employ two large state-of-the-art data centers. Kaiser also opened a multimillion-dollar Care Management Institute at its Oakland headquarters last year to devise its national treatment guidelines and to coordinate quality-improvement efforts. The clinical information system will help the institute spot and reduce variations in Kaiser's practice patterns and quality of care.

Kaiser recently has come under fire in at least one region for allegedly giving patients substandard care. Lawsuits in Texas charged, among other things, that the HMO denied patients tests that they needed and access to specialists. The company has settled the suits for several million dollars. CEO Lawrence says the problems in Texas have been fixed and represented minor episodes that aren't representative of Kaiser's national pattern of care. The new computer system might be able to prevent such cases in the future by alerting Kaiser to questionable practices.

Kaiser's project is being closely watched in the industry and should help spark medicine's overdue digital revolution. But many smaller HMOs may have trouble keeping pace. Besides its national reach and deep pockets, Kaiser exclusively controls nearly all of its doctors, hospitals, pharmacies, and labs. Thus, it can impose standards across its network of providers--a prerequisite to computerizing medical records. And since all Kaiser's data will be held under a single corporate umbrella, the HMO's project isn't likely to be derailed by one of the main obstacles facing broader efforts to digitize medical records: worries about keeping the information confidential when it exists on electronic networks that link disparate caregivers.

The idea of personal medical information coursing around freely gives most people the creeps. (Imagine if you were denied a job or health insurance because of a past medical condition.) Security concerns are a big reason why the medical world hasn't adopted standards needed to pave the way for the kind of computerization found in most other industries--for instance, there's no widely accepted format for patient identification numbers. To prevent electronic data leaks, Kaiser uses passwords, encryption, and sophisticated audit trails. Employees who breach security, even casually, are fired. Any data used for research or released to outsiders are aggregated and stripped of personal identifiers.

Kaiser's effort could show that the security and other problems that have hindered health-care computerization are not insoluble. It also could spur investing by other HMOs in competing solutions.

Already, an employer-led consortium called the National Committee for Quality Assurance (NCQA) has devised a bare-bones set of quality standards that are used to gather statistics for annual assessments of health plans. The standards cover aspects of care such as immunization rates, breast-cancer screenings, and eye exams for diabetics. "An HMO cannot compete" without reporting how it measures up to the standards, says health consultant Steinberg. Most of the information can be derived from existing claims data, but the NCQA is expected to add new measures that will be easier to collect for those with electronic medical records.

The NCQA also offers accreditation for health plans. Companies such as GM and Xerox require all their health plans to seek the NCQA's seal of approval. GM's ranking of its HMOs for employees is partly based on NCQA accreditation status and on how the health providers perform based on the consortium's quality standards. The plans that rank highest overall are the cheapest for employees to enroll in.

Some other HMOs, such as United HealthCare in Minneapolis, have started their own limited quality-improvement programs based on NCQA standards. Lee Newcomer, United HealthCare's medical director, declares: "If I had an electronic medical record, I would start paying physicians based on their performance." Hey, docs, welcome to the millennium.