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Michael Christopher, principal author, Senior Development Analyst, Healthcare IT Transition Group, and Martin Jensen, Chief Analyst, Healthcare IT Transition Group
79 pages; 48 charts, tables and illustrations; 819 word index.
Public Summary of the 2007 Survey Report
[ download the summary in pdf format ]
The Annual Survey of Regional Health Information Organization Finance was undertaken as an independent project by Healthcare IT Transition Group in March 2006, and again in March 2007. The survey was distributed to a broad list of health IT individuals and organizations to reach out to RHIO, HIO and HIE at all stages of development, including the earliest startup stage.
 After qualifying the portion of respondents that were bona fide health information exchanges, and that provided answers to required demographic and other pivotal questions such as lifecycle stage and legal structure, the 2007 responses of thirty-eight RHIOs were found eligible for inclusion in our analysis. Of these, 52% identified themselves as being in the “startup” stage, 24% in a “transition” stage, and 24% in the “production” stage. We broke these six categories further into the six categories established by eHealth Initiative for its annual survey of health information exchanges in order to permit a degree of cross correlation by investigators. While we do not cite these comparisons, they were used in the background phase of our analysis to, for instance, explore respondent eligibility factors.
Our 2007 sample represents 23% of the total U.S. HIO cohort, based on estimates of the number of U.S. health information exchanges (HIEs) by eHealth Initiative. Respondents were located in 28 U.S. states and territories from coast to coast, and ranged in age from newly formed to well-established entities with more than a decade of experience in what we now define as “RHIO.”
 Our financial analysis of the RHIO space began with an examination of revenue streams, service offerings, and stakeholders as sources of revenue. We divided revenue streams generally into contributed, earned, and others (including repayables such as loans and investor proceeds), and further divided earned revenue into membership/subscription fees, transaction fees and other earnings.
U.S. RHIO Technology Market Analysis
The 2007 report also includes data on RHIO technology spending. We gathered budget data, percentages spent on each of seven categories of technology goods and services. We combined these, along with year-over-year growth data, to arrive at a U.S. RHIO Technology Market, providing estimates for 2006 and 2007, and a projection for 2008. Our estimate for 2007 indicates a scant $128.6 million total U.S. RHIO technology shopping cart. With recent high-visibility announcements of nine digit RHIO development plans, this segment of the U.S. market is poised for rapid growth.
The report includes analysis of the RHIO purchase decision process, including a finding that RHIOs exercise substantial autonomy in purchasing with little dependence on third parties and parent entities.
Our report provides an estimate of the U.S. RHIO market for each of several product categories, including hardware, software, and consulting services, among others.
RHIO Earnings versus Contributed Income
 Because of a similar pattern in 2006, the investigators were not surprised this year to find that RHIOs continue to rely on grants for the lion’s share of revenues. RHIOs at all stages of development continue to anticipate the need for ongoing grant income, cited by between 80% and 90% of respondents across startup, transition and production stages. Even when we divide the production stage in half, and consider only those fully operational RHIOs (self-identifying as having reached the sixth, most mature lifecycle stage), and then further refine the sample to look only at those who state that they are now self-sustaining, 60% state that they still anticipate the need for grants.
While the percentage of income represented by earned versus grant income increased for 2007 in production-stage RHIOs (see the chart above), budgets showed little gowth, indicating a net decrease in grants. Furthermore, startup-stage RHIOs reported increased percentages of income from grants, up from 73% for 2006 to 84% for 2007.
Zero Entry Cost Model and RHIO Value Creation
On the earned income side, our data indicate that RHIOs may not be acting strategically with regard to pricing structure. Most continue to opt for membership fees rather than volume-based fees, with about three times as much revenue coming from the former as from the latter. We show that this may significantly cramp the RHIO value creation engine over the longer term. We also present data which shows that RHIOs appear to be experimenting with an alternative “zero entry cost” model in order to attract critical mass in a positive attempt to hasten the development of value, and we describe the economics that drive that process in some detail.
Emerging RHIO Business Model
The report includes a substantial discussion of the de facto RHIO business model as an arguably sustainable one, and we describe the emerging model as a grant-supported capital base upon which is built an infrastructure for earnings to sustain operations. We describe RHIOs’ execution of this model as problematic, however, and show how the majority have not optimally used the resources at their disposal. We describe federal support, and show that the RHIO movement has not adequately taken its message to the much more lucrative well of local and regional private foundations and other philanthropy. In this discussion we make note of the much larger nonprofit community’s deft use of grants as leverage toward sustainability; nonprofit healthcare entities represent only 38,000 of the 1.6 million U.S. nonprofit organizations, and we note that certain key financial best practices established in the broader nonprofit sector have not been adopted by RHIO.
Our survey data provide the basis for other analyses, including a shift in RHIO geographical reach toward a more typically statewide service area, a change in service offerings toward more “core” services, staffing levels, and top sources of earned revenue and grants.
From the Table of Contents
Executive Summary
Description of the Survey
Purpose
Methodology
The Survey Instrument
Respondents
Survey Structure
Overview of Findings
Reliance on Contributed Income
Some Missed Opportunities
Data Ownership Issues
We Used To Say “Technology Isn’t the Problem”
New Entry Cost Strategy
Scalable Revenue Model Lacking
The Capital Cycle
U.S. RHIO Technology Market
The Business of RHIO
Budgets
Staffing
Service Area
Service Offerings
Revenue Streams
Revenue Sources
Sources of Contributed Income
Outreach to Philanthropy
Sources of Earned Income
Providers Lead
Shifting Revenue Model
Zero Entry Cost Being Tested?
The Capital Cycle
The Non-Equity Capital Cycle
Profitability
The Capital Cycle in Good Health?
Technology Challenges
Broader Challenges
Shaping a RHIO
Value Creation
Two Monetization Approaches
Network Valuation: RHIO as the Set of Pathways
Exclusive Access to the Market
Growing with Zero Cost
Transaction Fees versus Membership/Subscription Fees
Attractions of the Membership/Subscription Fee Model
Importance of a Volume-based Revenue Model
Financial Leadership, Governance, Funding and the Emerging Business Model
Financial Leadership
Providers Lead
Legal Structure and Governance
The Accounts Receivable Paradigm
Funding
Ongoing Reliance on Contributions
The Emerging Business Model
Capital
Business Development
Basic Business Models
RHIO and Philanthropy
Weak Support At Best
Leveraging Earned Income from Charitable Support
How RHIOs Spend Their Money
Purchase Decisions
Technology Purchases
Technology Spending
Nationwide RHIO Technology Market
U.S. RHIO Technology Spending
Spending by Product/Service Category
RHIO as a Portion of the Total U.S. Health IT Market
Questions for RHIO
Appendix A: Financial Leadership Detail
2007 Startup Financial Leadership, Detail
2007 Transition Financial Leadership, Detail
2007 Production Financial Leadership, Detail
Appendix B: Income Sources Detail
2007 Startup Income Sources, Detail
2007 Transition Income Sources, Detail
2007 Production Income Sources, Detail
Appendix C: Services
Service Offerings, 2006
Service Offerings, 2007
Appendix D: Revenues
Revenue Percentages Year-Over-Year
Membership Fees and Transaction Fees Percentage of Total Income, 2006, 2007
Appendix E: Organization Age and Establishment
Appendix F: Technology Challenges
Index
About the Authors
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Keywords: RHIO, regional health information organization, HIO, funding case, finance, grant, fund, financial analysis, startup, fundraising, contribution, grants, stakeholder, solvent, sustainable, sustainability, business model, earned income, loan, investor, investment, 501c3, 501c6, 501(c)4, nonprofit, for-profit, volume-based, network effect, network economics, Metcalf's Law, transaction fee, dues, payment, charitable, commercial, public good, self-sufficiency, philanthropy, interoperable standards, immunization registry, transport, claims, commercialization, revenue, network effect, value creation, income, expense, capital, HIE, health information exchange, HIE, electronic health record, electronic medical record, EMPI, patient indexing, EMR, health IT, healthcare information technology, interoperability, NHIN, national health information network, HRSA, earned revenue, contributed revenue, grants, capital development, health information technology, health IT, clinical informatics, telemedicine, RHIO technology, RHIO software, U.S. RHIO technology market, RHIO applications, systems. |
