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Digital records a boon to firms selling systems


It was a tantalizing pitch: come get a piece of a $19 billion government "giveaway."

The approach came in 2009, in a presentation to doctors by Allscripts Healthcare Solutions of Chicago, a well-connected player in the lucrative business of digital medical records. That February, after years of behind-the-scenes lobbying by Allscripts and others, legislation to promote the use of electronic records was signed into law as part of President Barack Obama’s economic stimulus bill. The rewards, Allscripts suggested, were at hand.

But today, as doctors and hospitals struggle to make new records systems work, the clear winners are big companies like Allscripts that lobbied for that legislation and pushed aside smaller competitors.

While proponents say new record-keeping technologies will one day reduce costs and improve care, profits and sales are soaring now across the records industry. At Allscripts, annual sales have more than doubled from $548 million in 2009 to an estimated $1.44 billion last year, partly reflecting daring acquisitions made on the bet that the legislation would be a boon for the industry. At the Cerner Corp. of Kansas City, Mo., sales rose 60 percent during that period. With money pouring in, top executives are enjoying Wall Street-style paydays.

None of that would have happened without the health records legislation that was included in the 2009 economic stimulus bill — and the lobbying that helped produce it. Along the way, the records industry made hundreds of thousands of dollars in political contributions to both Democrats and Republicans. In some cases, the ties went deeper. Glen E. Tullman, until recently the chief executive of Allscripts, was health technology adviser to the 2008 Obama campaign. As CEO of Allscripts, he visited the White House no fewer than seven times after Obama took office in 2009, according to White House records.

Tullman, who left Allscripts late last year after a boardroom power struggle, characterized his activities in Washington as an attempt to educate lawmakers and the administration.

"We really haven’t done any lobbying," Tullman said in an interview. "I think it’s very common with every administration that when they want to talk about the automotive industry, they convene automotive executives, and when they want to talk about the Internet, they convene Internet executives."

Between 2008 and 2012, a time of intense lobbying in the area around the passage of the legislation and how the rules around government incentives would be shaped, Tullman personally made $225,000 in political contributions. While tens of thousands of those dollars went to the Democratic Senatorial Campaign Committee, money was also been sprinkled towards Sen. Max Baucus, D-Mont., who is chairman of the Senate Finance Committee and Sen. Jay D. Rockefeller, D-W.Va., who chairs the Commerce Committee. Tullman said his recent, personal contributions to various politicians have largely been driven by his interest in supporting Obama and in seeing his re-election.

Cerner’slobbying dollars doubled to nearly $400,000 between 2006 and last year, according to the Center for Responsive Politics. While its political action committee contributed a little to some Democrats in 2008, including Baucus, its contributions last year went entirely to Republicans, with a large amount going to the Mitt Romney campaign.

Current and former industry executives say that big digital records like Cerner, Allscripts and Epic Systems of Verona, Wis., have reaped enormous rewards because of the legislation they pushed for. "Nothing that these companies did in my eyes was spectacular," said John Gomez, the former head of technology at Allscripts. "They grew as a result of government incentives."

Executives at smaller records companies say the legislation cemented the established companies’ leading positions in the field, making it difficult for others to break into the business and innovate. Until the 2009 legislation, growth at the leading records firms had been steady; since then, it has been explosive. Annual sales growth at Cerner, for instance, has doubled to 20 percent from 10 percent.

"We called it the Sunny von Bulow bill. These companies that should have been dead were being put on machines and kept alive for another few years," said Jonathan Bush, co-founder of cloud-based firm athenahealth and a first cousin to former President George W. Bush. "The biggest players drew this incredible huddle around the rule-makers and the rules are ridiculously favorable to these companies and ridiculously unfavorable to society."

This industry, which was pioneered in the late 1970s, first gained widespread attention in 2004 when Bush in his State of the Union speech called for digitalizing national health records.

"After that, every technology CEO wanting a piece of health care would have visited me every day if I had let them," said David Brailer, whom Bush appointed as the nation’s first health information czar. Over the next few years, Cerner and many of the other health care data companies increased their presence on Capitol Hill.

The records systems sold by the biggest vendors have their fans, who argue that, among other things, the systems make prescribing medications electronically easier. But these systems also have many critics, who contend that they can be difficult to use, can’t share patient information with other systems and are adding sometimes hours to the time physicians spend documenting patient care.

"On a really good day, you might be able to call the system mediocre, but most of the time, it’s lousy," said Michael Callaham, the chairman of the department of emergency medicine at the San Francisco Medical Center, which eight months ago turned on its $160 million digital records system from Epic. Michael Blum, the hospital’s chief medical information officer, said the majority of doctors there like the Epic system.

Whatever the case, the legislation has been a windfall to top executives at the leading health records companies. Neal L. Patterson, who grew up on a farm near the tiny town of Manchester, Okla., co-founded Cerner in 1979. As Cerner’s sales have soared in recent years, so have Patterson’s fortunes. From 2007 to 2011, he received more than $21 million in total compensation, according to the executive compensation research firm Equilar, and his stake in the company is worth $1 billion. In recent years, Patterson and his wife, Jeanne Lillig-Patterson, who ran as a Republican for Congress in 2004, have emerged as social and business leaders in the Kansas City, Mo., area. Neal Patterson is also co-owner of a real-estate development firm whose ventures include a 1,200-acre community near Kansas City called the Village of Loch Lloyd, featuring a Tom Watson-designed golf course.

A spokeswoman for Cerner said Patterson was unavailable for comment.

The medical records industry didn’t have much of a presence in Washington before Bush highlighted it in 2004. Then in November that year, the industry created its first association, the Healthcare Information and Management Systems Society EHR Vendor Association, to educate and make the case for electronic records. Its founding members included Allscripts, Cerner and Epic.

Four years later, in December 2008, H. Stephen Lieber, chief executive of the group, wrote an open letter to President-elect Obama calling for a minimum government investment of $25 billion to help hospitals and physicians adopt electronic records. The industry ultimately got at least $19 billion in federal and state money.

In the months after that windfall arrived, leading vendors saw their sales climb as hospitals and physicians scrambled to buy systems to meet tight timetables to collect the incentive dollars. At Allscripts, Tullman soon announced what looked like a game-changing deal: the acquisition of another records company, Eclipsys, for $1.3 billion.

"We are at the beginning of what we believe will be the fastest transformation of any industry in U.S. history," Tullman said when the deal was announced.

Last spring, some of the Eclipsys board members left following a power struggle; Tullman left in December. He is now at a company he co-founded that focuses on solar energy — another area that, after Obama administration and Congress expanded government incentives in the 2009 stimulus bill, has been swept by a gold-rush mentality, too.

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