February 19, 2013 A Digital Shift on Health Data Swells Profits in an
Industry By JULIE CRESWELL

It was a tantalizing pitch: come get a piece of a $19 billion government
“giveaway.”

The approach came in 2009, in a presentation to doctors by Allscripts
Healthcare Solutions of Chicago, a well-connected player in the lucrative
business of digital medical records. That February, after years of
behind-the-scenes lobbying by Allscripts and others, legislation to
promote the use of electronic records was signed into law as part of
President Obama’s economic stimulus bill. The rewards, Allscripts
suggested, were at hand.

But today, as doctors and hospitals struggle to make new records systems
work, the clear winners are big companies like Allscripts that lobbied
for that legislation and pushed aside smaller competitors.

While proponents say new record-keeping technologies will one day reduce
costs and improve care, profits and sales are soaring now across the
records industry. At Allscripts, annual sales have more than doubled
from $548 million in 2009 to an estimated $1.44 billion last year, partly
reflecting daring acquisitions made on the bet that the legislation would
be a boon for the industry. At the Cerner Corporation of Kansas City,
Mo., sales rose 60 percent during that period. With money pouring in,
top executives are enjoying Wall Street-style paydays.

None of that would have happened without the health records legislation
that was included in the 2009 economic stimulus bill — and the lobbying
that helped produce it. Along the way, the records industry made hundreds
of thousands of dollars of political contributions to both Democrats
and Republicans. In some cases, the ties went deeper. Glen E. Tullman,
until recently the chief executive of Allscripts, was health technology
adviser to the 2008 Obama campaign. As C.E.O. of Allscripts, he visited
the White House no fewer than seven times after President Obama took
office in 2009, according to White House records.

Mr. Tullman, who left Allscripts late last year after a boardroom power
struggle, characterized his activities in Washington as an attempt to
educate lawmakers and the administration.

“We really haven’t done any lobbying,” Mr. Tullman said in an
interview. “I think it’s very common with every administration
that when they want to talk about the automotive industry, they convene
automotive executives, and when they want to talk about the Internet,
they convene Internet executives.”

Between 2008 and 2012, a time of intense lobbying in the area around the
passage of the legislation and how the rules for government incentives
would be shaped, Mr. Tullman personally made $225,000 in political
contributions. While tens of thousands of those dollars went to the
Democratic Senatorial Campaign Committee, money was also being sprinkled
toward Senator Max Baucus, the Democratic senator from Montana who is
chairman of the Senate Finance Committee, and Jay D. Rockefeller, the
Democrat from West Virginia who heads the Commerce Committee. Mr. Tullman
said his recent personal contributions to various politicians had largely
been driven by his interest in supporting President Obama and in seeing
his re-election.

Cerner’s lobbying dollars doubled to nearly $400,000 between 2006 and
last year, according to the Center for Responsive Politics. While its
political action committee contributed a little to some Democrats in 2008,
including Senator Baucus, its contributions last year went almost entirely
to Republicans, with a large amount going to the Mitt Romney campaign.

Current and former industry executives say that big digital records
companies like Cerner, Allscripts and Epic Systems of Verona, Wis.,
have reaped enormous rewards because of the legislation they pushed
for. “Nothing that these companies did in my eyes was spectacular,”
said John Gomez, the former head of technology at Allscripts. “They
grew as a result of government incentives.”

Executives at smaller records companies say the legislation cemented
the established companies’ leading positions in the field, making
it difficult for others to break into the business and innovate. Until
the 2009 legislation, growth at the leading records firms was steady;
since then, it has been explosive. Annual sales growth at Cerner, for
instance, has doubled to 20 percent from 10 percent.

“We called it the Sunny von Bülow bill. These companies that should
have been dead were being put on machines and kept alive for another
few years,” said Jonathan Bush, co-founder of the cloud-based firm
Athenahealth and a first cousin to former President George W. Bush. “The
biggest players drew this incredible huddle around the rule-makers and
the rules are ridiculously favorable to these companies and ridiculously
unfavorable to society.”

This industry, which was pioneered in the late 1970s, first gained
widespread attention in 2004 when President Bush in his State of the
Union speech called for digitizing national health records.

“After that, every technology C.E.O. wanting a piece of health care
would have visited me every day if I had let them,” said David Brailer,
whom President Bush appointed as the nation’s first health information
czar. Over the next few years, Cerner and many of the other health care
data companies increased their presence on Capitol Hill.

The records systems sold by the biggest vendors have their fans, who
argue that, among other things, the systems ease prescribing medications
electronically. But these systems also have many critics, who contend
that they can be difficult to use, cannot share patient information
with other systems and are sometimes adding hours to the time physicians
spend documenting patient care.

“On a really good day, you might be able to call the system mediocre,
but most of the time, it’s lousy,” said Michael Callaham, the chairman
of the department of emergency medicine at the University of California,
San Francisco Medical Center, which eight months ago turned on its $160
million digital records system from Epic. Michael Blum, the hospital’s
chief medical information officer, said a majority of doctors there like
the Epic system.

Whatever the case, the legislation has been a windfall to top executives
at the leading health records companies. Neal L. Patterson, who grew
up on a farm near Manchester, Okla., population 100, co-founded Cerner
in 1979. As Cerner’s sales have soared in recent years, so have
Mr. Patterson’s fortunes. From 2007 to 2011, he received more than $21
million in total compensation, according to the executive compensation
research firm Equilar, and his stake in the company is worth $1 billion.

In recent years, Mr. Patterson and his wife, Jeanne Lillig-Patterson,
who ran as a Republican for Congress in 2004, have emerged as social
and business leaders in the Kansas City, Mo., area. Mr. Patterson is
also co-owner of a real estate development firm whose ventures include a
1,200-acre community near Kansas City called the Village of Loch Lloyd,
featuring a Tom Watson-designed golf course.

A spokeswoman for Cerner said Mr. Patterson was unavailable for comment.

The medical records industry did not have much of a presence in Washington
before President Bush highlighted it in 2004. Then in November that year,
the industry created its first association, the Healthcare Information
and Management Systems Society EHR Vendor Association, to make the case
for electronic records. Its founding members included Allscripts, Cerner
and Epic.

Four years later, in December 2008, H. Stephen Lieber, chief executive
of the group, wrote an open letter to President-elect Obama calling
for a minimum government investment of $25 billion to help hospitals
and physicians adopt electronic records. The industry ultimately got at
least $19 billion in federal and state money.

In the months after that windfall arrived, sales climbed for leading
vendors as hospitals and physicians scrambled to buy systems to meet tight
timetables to collect the incentive dollars. At Allscripts, Mr. Tullman
soon announced what looked like a game-changing deal: the acquisition
of another records company, Eclipsys, for $1.3 billion.

“We are at the beginning of what we believe will be the fastest
transformation of any industry in U.S. history,” Mr. Tullman said when
the deal was announced.

Last spring, some of the Eclipsys board members left after a power
struggle; Mr. Tullman left in December. He is now at a company he
co-founded that focuses on solar energy — another area that, after
Obama administration and Congress expanded government incentives in the
2009 stimulus bill, has been swept by a gold-rush mentality, too.

This article has been revised to reflect the following correction:

Correction: February 20, 2013

An earlier version of this article omitted part of the name of the
institution that employs Michael Callaham and Michael Blum. It is the
University of California, San Francisco Medical Center, not the San
Francisco Medical Center.