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Appendix C: Background on the Market Landscape Pertaining To Exchange of Health Information

Fee-for-Service Economics

Despite general consensus on the value of information exchange in making health care more efficient and effective, the majority of providers are still not exchanging data in a systematic and effective manner.105 There has been significant progress in EHR adoption and a shift away from paper records in the past decade. Efforts are also underway to improve exchange of information between providers, but a great deal more must be accomplished to ensure robust data exchange. According to a 2014 study, only 30 percent of hospitals in the United States participate in exchange of health information with unaffiliated providers, although rates can vary significantly across states.106 Many experts believe that a primary reason many providers are still not participating in data exchange is that it runs counter to their economic incentives in a predominately volume-driven, FFS payment system.107 As discussed in Section 1, despite efforts to move to VBP models that would encourage greater information sharing by tying financial incentives to quality of care, health care providers continue to primarily be paid for each service they deliver. When providers do not receive adequate incentives for care coordination and other activities that lead to more efficient care and better outcomes, the economic value of data exchange is limited and may even work against data sharing. 108

For example, if a provider sees a new patient and needs to order an imaging test (which is often highly profitable), data exchange may reveal that another provider recently ordered the same imaging test, eliminating both the need to conduct the test and the additional payment. This financial penalty can easily swamp the marginal economic benefits associated with data exchange facilitating better patient care.109 Alternatively, under a VBP model, providers are financially rewarded for minimizing overall costs and improving patient outcomes through efficiencies such as fewer duplicative tests and better coordinated care, which creates an economic incentive for robust information exchange.

Ultimately, most providers strive to deliver optimal care to their patients, but they must do so within the confines of the existing payment structure; many experts believe that we will not reach widespread interoperability among providers unless it yields a meaningful economic benefit.110