Microsoft Builds Out Health IT Portfolio, Waits (and Waits) for Market to Materialize

2/26/10Follow @xconomy

Patience has got to be the watchword for the 800 or so people who work at Microsoft’s Health Solutions Group. There’s certainly been a lot of political rhetoric over the past year about dragging the inefficient world of pen and paper medical records into the 21st century—but this is still one big market opportunity waiting to be tapped.

More than four years have gone by since former drugstore.com CEO Peter Neupert re-joined Microsoft to spearhead its worldwide health strategy. This division isn’t going to pay the bills like Windows 7 does anytime soon, but Microsoft has shown it is willing to keep building a wide and deep portfolio of products, and to be patient for when its day will come. That was the sense I got during a wide-ranging conversation I had earlier this week with Nate McLemore, Microsoft’s general manager of business development and policy in the Health Solutions Group.

“We are taking this very seriously and investing a lot,” McLemore says. “It’s a top-of-mind issue for governments, for businesses, and for consumers. They are all our customers.”

Healthcare IT has been near the top of the U.S. political agenda since January 2009, when President Obama set a goal of making all of the nation’s health records computerized within five years. The administration poured in $19 billion (or $47 billion, depending on whose budget numbers you believe) from the federal stimulus to support electronic medical records adoption. There are a million reasons why this hasn’t caught on yet, not the least of which are consumers’ worries that insurers will get a hold of the data to discriminate against them, physicians’ adherence to tradition, and hospitals’ fears that they will lose data or somehow mess things up or damage patient care.

If the money spigot ever turns on to encourage massive adoption of electronic records, Microsoft is definitely positioned—along with competitor Google Health—to be ready to pounce. Microsoft has been methodically assembling a portfolio of software products that tackle all sorts of inefficiencies. One product seeks to help consumers and providers better share electronic records (HealthVault). Another aims to get all 65 or so proprietary health programs the average U.S. hospital has to talk to each other (Amalga). A third program (Amalga Life Sciences) seeks to get researchers who are drowning in genomic data to put it in a form that might be useful if the world ever shifts to personalized, genomic-based medicine.

Nate McLemore

Nate McLemore

So what kind of traction is Microsoft seeing here? The company isn’t saying how many consumers are using HealthVault. It’s measuring progress in other ways, like how there were 46 healthcare organizations who adopted HealthVault when the platform was introduced in October 2007, and now that number has climbed to 150. When the program launched, there were nine devices that could upload data to be compatible with HealthVault—think blood sugar monitors for diabetics, for example. Now there are 70.

But really, the various constituents—doctors, patients, hospitals—who all need to adopt these technologies are taking their sweet time. All that e-health money that was authorized for spending from the American Reinvestment and Recovery Act—something between $19 billion or $47 billion, depending on budget assumptions—is still waiting to be put to work, McLemore says.

The federal program is a classic carrot-and-stick approach. The feds are supposed to offer something between $2 million and $12 million to health providers who make electronic health data available to patients, as long as they can demonstrate “meaningful use” of the technology. Physicians will be eligible for as much as $44,000 in incentives, McLemore says. If they don’t switch, penalties will kick in at some point. But none of the incentive money has flowed yet, because officials are still working to finalize the criteria and definitions of “meaningful use” of the technology, McLemore says. Microsoft is hoping the incentives for electronic medical record adoption are offered by this October, McLemore says.

“We think and hope it will happen by then, but nothing happens overnight in healthcare,” McLemore says.

Microsoft doesn’t think this is the right moment—not yet anyway—but at some point it may want to pour some marketing dollars into trying to convince consumers to be the grassroots agents of change. But before big Olympic-budget marketing bucks start to flow, more consumers need to be using it, and more devices, and more applications need to be compatible, McLemore says. He made the analogy to the Xbox video game system, saying Microsoft didn’t spend much on marketing until there was a critical mass of games available to play on the machine.

Hospitals are another key piece of the puzzle. About 115 U.S. hospitals have bought a license to the Amalga Unified Intelligence System, including academic leaders like the University of Washington and Mayo Clinic, as well as community hospitals. This is the program that helps hospital workers run queries that enable all the various proprietary software programs in a hospital to talk to each other. Microsoft’s latest move to strengthen this product came via an acquisition earlier this month of Andover, MA-based Sentillion, for an undisclosed sum.

Sentillion was considered useful because it enables a physician to check a lab report, a pharmacy record, or anything else while basically toggling between programs on a desktop, like anybody else would on a computer running Windows 7. It’s meant to eliminate the extra time-consuming hassles of logging in and out of separate programs, which might discourage a physician from double-checking something when they are busy—and might later prove to be important, McLemore says.

“It’s a powerful tool so you can go in and out of applications, yet stay within the context of the patient you’re examining,” McLemore says.

Since McLemore’s title includes business development and policy, I naturally had to ask if Microsoft still has an appetite to acquire more health IT companies like Sentillion. The Health Solutions Group has made six acquisitions over the past four years. “We’re always looking for different technologies to enhance our offerings,” he says.

I didn’t want to spend much time on policy, because we leave the coverage of policy and politics to other sources in the Beltway press corps. But the endless partisanship, and subsequent uncertainty about the scope of health reform, obviously isn’t ideal for a company trying to map out long-range business plans. Microsoft, McLemore says, still thinks a lot more needs to happen on the policy front to make the U.S. health care system more efficient, and ensure it provides bang for the buck.

“One of the things we think is critical to the success of health reform is to reform the way we pay for care,” McLemore says. “For a long time, we’ve paid for the volume of procedures done, not for the quality or value we get. There need to be changes to the way we reimburse providers, so they are not invested in doing more volume, but providing more quality.”

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