Released on: September 11, 2007, 5:00 pm

Press Release Author: Healthcare IT Transition Group

Industry: Healthcare

Press Release Summary: Physicians were 88% less likely to provide significant
revenues for young Regional Health Information Organizations (RHIOs) in 2007. RHIOs
may be testing a low entry cost model to build value.

Press Release Body: Physicians were 88% less likely to be cited as a "significant
source" of earned revenues by startup-stage Regional Health Information
Organizations (RHIOs) than they were a year ago. Physician contributions to RHIO
earnings also dropped among more mature RHIOs.

The data comes from the annual Survey of Regional Health Information Organization
Finance (http://rhio.hittransition.com). Investigators analyzing data from
thirty-eight RHIOs report that some exchanges may be testing a "zero entry cost"
model to attract individual practitioners and physician groups. According to
Healthcare IT Transition Group which conducted the study, related data suggest
minimal year-over-year growth in RHIO revenues, while service offerings remained
more or less stable. Taken together with other data from the survey, these findings
could signal a near-term shift in priorities towards more aggressive membership
recuitment at the expense of some short-term cash flow.

The problem of attracting smaller physician practices is one of the frictional
factors in the RHIO movement. The group suggests that production RHIOs with standing
fee-based relationships with their provider members may be less likely to change
fees downward for new members, while younger health information exchanges may be
freer to experiment. Perhaps more importantly, the stakes are higher for the younger
RHIO, whose lower transaction volume and smaller membership present a
less-attractive value proposition than a more fully subscribed exchange could offer.


In a related finding, the report, "Sustainable RHIO Funding and the Emerging
Business Model," notes that there has been little movement toward volume-based
pricing (in the form of transaction fees). RHIOs continue to favor the flatter
membership/subscription fee model, which promises earlier cash flow but lacks the
scalar advantages of a volume-based model. RHIO growth - if it is to reach the scale
needed to evolve into an envisioned National Health Information Nework (NHIN) - will
have to be impressive over the coming years. However, the study raises an important
question: How will RHIO reach its potential unless it shapes its business model to
operate in ways that take advantage of its intrinsic value creation dynamics? The
report pegs growth between 2006 and 2007 at an unimpressive 2.3 percent.

The 2007 survey finds fewer responding RHIOs who would state that they expect to be
self-sustaining. Under twenty percent said that they had actually achieved that
goal, and, of those, fully 60% said that they still anticipate applying for grants.

Ironically, that may be a good thing, too. Seventy-nine percent of the
legally-established RHIOs had chosen a nonprofit structure, which offers numerous
benefits. Among these is that private foundations are permitted to make grants to
these groups, but not to for-profit entities. U.S. foundations contribute hundreds
of billions of dollars annually to nonprofit organizations - many times the funding
provided by the federal government. Nonprofit orgnizations often use this
contributed income to leverage the production capacity to later achieve increased
earned revenues.

The report suggests that the RHIO movement is "leaving money on the table" by not
aggressively seeking private philanthropic support; and by attempting to execute a
business model that sets high expectations for early commercialization in unmapped
territory. Representation from private foundations, Community Foundations and
Community-based Public Foundations are notably scarce in the RHIO space, both as
financial adviors and as funders, according to the report. Contrasted with the
broader nonprofit sector in which similar major projects of high community
importance are frequently partnered with local, regional and statewide foundations,
RHIO may be missing key development opportunities, say the report's authors.

The report is available at http://rhio.hittransition.com.


Web Site: http://rhio.hittransition.com

Contact Details: 5810 East Skelly Drive, Ste 715
Tulsa, OK 74135
media@hittransition.com