Imagine a world where all your health records were in electronic form. Your doctors would have your health history and medical records at their fingertips. A primary care doctor could access and share your most recent blood tests, X-rays and other routine test results with specialists. In an emergency, paramedics would instantly know your drug allergies.

The potential of electronic medical records is undeniable. Having health and medical information in digital form rather than paper would mean better care for patients; improved communication among doctors, facilities and insurers; increased efficiency; and lower costs.

It could be a huge opportunity for the IT industry. Health Industry Insights, an IDC company, estimates that U.S. hospitals will spend about $15.5 billion on hardware, software and IT services in 2007, while physicians' practices and other ambulatory care providers will spend $3.6 billion, according to Marc Holland, research director of Health Industry Insights. And that's projected to grow at least 7 percent to 8 percent a year for the next several years. Of the combined outlay of $19.1 billion, says Holland, about $5.5 billion is spent on clinical systems, which includes electronic medical record systems (EMRs) and the applications that contribute to them.

Healthcare solution providers have high hopes that the market will take off. Any VAR or integrator who has doctors' offices, health clinics or hospitals as clients is a good candidate to offer EMRs. Often, such solution providers started by offering general IT and networking, then were drawn into reselling practice management software as healthcare clients began automating their scheduling and billing processes. EMRs, though, require more involvement by and commitment from healthcare practitioners themselves. Practice management software requires only an office manager to enter the data, but medical record systems may require the doctor to enter patient information. This can mean a longer sales cycle and a greater investment of both time and money.

A Wealth of Choices
Solution providers getting started with EMRs face many choices. The market is highly fragmented, with vendors ranging from giant companies, such as $93-billion McKesson Corp., to small IT shops. Some suppliers focus on enterprise-level software for large hospitals and institutions; others sell software tailored for practices with just a few doctors.

There's also confusion over terminology, definitions and standards. Some companies use the term "electronic health record," for example, while others use "electronic medical record." And most large institutions use what's called a "computer-based patient record," according to Dr. Thomas J. Handler, research director in Gartner's healthcare provider research group.

Large hospitals are leading the way in EMR adoption. Recent surveys of executives at major U.S. healthcare institutions by the Healthcare Information and Management Systems Society (HIMSS) indicate that 32 percent of hospitals now have operational EMRs, 37 percent are in the process of implementing them and 22 percent are actively planning them. The scope and content of these implementations, however, can vary widely from one hospital to another.

The greatest opportunity for solution providers is in local physicians' practices and smaller institutions. Some 60 percent of annual patient encounters in the U.S. happen in the private practices of three or fewer physicians. Estimates vary, but the consensus is that fewer than 15 percent of all physician practices have any form of EMR, and only 5 percent to 10 percent of the smallest practices do, according to Health Industry Insights.

It's all very tempting. "The largest part of the market is the last to adopt the technology, but it is poised and ready to do that," says Bud Meadows, vice president of sales and the channel partner program at Sage Software. He sees an acceleration in the adoption of EMRs by physicians, predicting that "over the next three to five years, as many as 15,000 practices a year will purchase an EMR (solution)."

The Push for EMR
A number of converging factors should drive the market over the next several years. Chief among them is growing pressure from the federal government and insurance companies to use EMRs. Indeed, President Bush in 2004 set a goal for most Americans to have what he called "electronic health records" by 2014. He also appointed a national health information technology coordinator, who is working on health information standards and processes, and coordinating partnerships between government and the private sector to speed the adoption of health IT.

The government and insurers also are adopting pay-for-performance measures that tie reimbursements to efficacy of care. "By centralizing all care data into a single repository, electronic health records provide complete and accurate views of each patient's care history and care plan. As a result, providers are able to better enforce consistent care practices and more easily monitor organizational performance," says Dale Troppito, managing partner of the Gantry Group, a market research firm that advises healthcare IT vendors.

As an example, the Centers for Medicare and Medicaid Services, which is the governing body for Medicare, has started offering reimbursement incentives to physicians that meet specific quality standards. IT, especially EMRs, facilitates the reporting required for these programs.

Furthermore, a recent change in the law could encourage hospitals to help local physician practices use EMRs. In 2006, Congress amended the so-called Stark law to allow hospitals to donate funds, software, hardware and services to private physician practices that set up EMRs. "That's had a positive impact," says Sage's Meadows. "It's increased the level of interest, and it's driving conversations."

Doctors Need a Push
It remains to be seen whether and how fast these trends will stimulate the market.

Although the price of hardware and EMR software is dropping, doctors see little financial incentive to adopt such a system, says Holland. Physicians simply aren't convinced that an EMR solution -- which may cost tens of thousands of dollars, plus the time and trouble to learn how to use the system -- will enhance their practices or provide a financial return on their investments. In fact, some surveys show that most of the financial rewards accrue to insurers or hospitals rather than to the doctor's practice.

On top of that, and perhaps as important, are strong cultural barriers. Often, neither doctors nor their staff are knowledgeable about IT, so they are understandably reluctant to deploy a system that could disrupt their business.

Indeed, one key to successfully selling EMRs is targeting the right prospects, says Robert Gabriel, president and CEO of Microwize Technology, a healthcare solution provider who derives 75 percent of its revenue from practice management and the rest from EMRs. If a doctor is not comfortable with gadgets, if he doesn't own an iPod or can't program his TiVo, then Gabriel doesn't push it. "EMRs require dedication and commitment by the practitioner," he notes. "Otherwise, it'll be just a hit-and-run and a waste of sales effort."

Jack Woodham, CEO of MD Solutions, also a healthcare solution provider, agrees, noting that the sales cycle for EMRs is longer and the total investment -- in hardware, software and time -- is larger than for practice management software. "The physician has to use a PC or be willing to learn," notes Woodham. Today, less than 10 percent of his revenue comes from EMR.

To get around these cost and culture barriers, some vendors have started to offer EMRs as a web-based service. These companies, such as eClinical - Works, have low up-front costs and charge monthly service fees. Another emerging model consists of large practice associations that are forming their own IT service companies and negotiate bulk buys from vendors. They then help individual practices with the technology. A good example of that is Taconic IPA in upstate New York, which just launched a for-profit subsidiary, called MedAllies, that provides the resources to install the software, train the physician's staff and host the application on behalf of the physician.

Lack of standards is another problem. Last year the Certification Commission for Healthcare Information Technology (CCHIT) adopted a set of voluntary standards and began certifying products, but so far only a fraction of the products on the market have been certified, perhaps because the cost is too high for many of the small vendors. According to CCHIT, it costs $28,000 for the application, testing and first year's certification maintenance. But there's also a reluctance because each vendor tends to define the features and functions of an EMR solution slightly differently.

Meanwhile, Gabriel says that doctors, hospitals and solution providers have had their hands full focusing on updating their practice management to meet the national ID provisions in HIPAA. For the past year or more, IT budgets have been focused on complying with those requirements, so there hasn't been much attention or money for EMRs, says Gabriel, whose company saw a 70 percent to 80 percent increase in revenue from billing software over six months in 2007.

And some doctors are simply waiting for consolidation among the hundreds of EMR and health IT vendors. That's already started. Sage Software, in fact, entered the health IT business by acquiring the Practice Services Division of Emdeon Corporation in September 2006. Allscripts acquired A4 Health earlier that year. But there are still hundreds of different EMR packages on the market, and analysts predict many more mergers and acquisitions.

These factors mean the EMR market may not hit its stride for three to five years, says Gabriel. But when it does, those vendors and solution providers who've done their homework may find themselves in a very healthy market indeed.