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Sydney Williams is Founder and President of Lyceum Associates (, exploring transitions in health care, IT, financials, and the economy.
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  • "Controlled" Health Information Exchange: What a New Federal Rule Could Mean 0 comments
    Dec 14, 2009 3:05 PM | about stocks: CERN, ATHN, MCK, AMZN, WMT, PFE, LLY, NVS, DRG, RX

    What's the point of information exchange, if you can't view it, analyze it or pass it along?

    On December 11th, shares in the market research firm IMS Health tumbled on news of a proposed amendment to the Senate health bill that would ban drugmaker access to prescription data. Should this legislative action pass, it would force down the company's valuation just as IMS's management team finalizes the company's sale—the largest private equity transaction of 2009—to TPG and the Canada Pension Plan.

    The federal rule's terms are not groundbreaking at the state level. They would mimic similar legislation enacted in New Hampshire, Maine and Vermont over the past four years. In fact, it was also IMS Health that lost a 2008 appeal against the state of New Hampshire and its law banning prescription drug data gathering. In June 2009, the US Supreme Court declined to review the appeal, opening the possibility for other states to legislate similar bans.

    Important questions
    And while the Senate amendment may not pass, it does raise important questions, none of which is likely to disappear anytime soon:

    • How important is free flowing information to the economic model of an industry and its value chain?
    • What are appropriate consumer protection mechanisms?
    • Do digital data require a different set of rules than analogue data?
    • What's the balance of power between states and the federal government in controlling information flow?

    Because the debate over prescription drug information features—as its key issues—consumer privacy, data ownership and government intervention, its participants are likely to extend across and beyond the health care sector.

    To put it simply, the implications of a national law are as vast as the economy itself. They impact not just the usefulness of health information exchange, but the effectiveness of the care delivery system, and—beyond health care—the general application of market analysis to consumer buying behavior.

    Consider this just in terms of health care. As part of the March 2009 stimulus bill, lawmakers allocated nearly $20 billion in incentive money that the Department of Health and Human Services ("HHS") will pay out to providers adopting electronic health records in a meaningful way. The first payments are scheduled to begin in little more than a year.

    Digital health information, the argument goes, leads to better patient outcomes because it allows for critical data exchange across the care delivery system, which includes not just providers, but also product manufacturers, service vendors, payers, consultants and others.

    Already, that system is learning new HIPAA rules, which impose additional restrictions on information flow, and now include both civil and criminal penalties for non-compliance. If government hardens the flow even more, especially as the health industry transitions to a digital framework, it could, in effect, devalue taxpayer money to zero even before HHS doles out the incentives.

    HHS, as an aside, will pay this money through Medicare reimbursement, utilizing the current fee-for-service framework. Many industry people believe Congress missed an important opportunity to shift reimbursement to a value-based system.

    Limited information
    Even if providers can implement EHR systems that function appropriately as defined by "meaningful use"—and many industry people don't expect this to lead to substantially higher penetration rates among different provider groups than the single digits that currently exist—few of them would have much use for the patient information that the systems could navigate.

    It would be no different than purchasing a fully-loaded, high-performance sports car, when onerous road rules limit its owner just to driving around the block.

    While government should establish basic parameters, it risks derailing substantial progress in digital information exchange if it complicates a nascent system. Unintended consequences could have lasting impact.

    Government would also establish a precedent that extends to other industries. Lawyers will likely challenge any effort aimed at packaging and selling consumer buying behavior, including highly sophisticated systems in the retail industry. Even companies relying on proprietary systems, such as Walmart and, could see direct challenges to their business models, if a national consumer protection law is aggressively pursued.

    At the very least, we're learning how just one small amendment to a massive congressional bill could propagate an economic shock wave. Sorting through the bill's myriad details could take longer than its multi-year roll out.

    Perhaps we'll discover that many of these details cancel the net economic impact. Then again, maybe they'll multiply the impact.

    Either way, the market's reaction to IMS Health reveals deep-rooted uncertainty that won't soon go away.

    Disclosure: NO POSITIONS
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