1,000,000s of patients, 100s of hospitals, entire countries, open source and $7.5 million in VC are right about medical IS

Submitted by Norm Roulet on Thu, 02/10/2005 - 21:38.

Below is a story about a company in LA that's doing exactly what companies and all medical service providers must do here - using open source VistA medical information management standards to transform healthcare. This is THE realization of the $125 million vision President Bush recently promoted here, and the understanding the Cleveland Clinic has embraced, and the certainty all other healthcare providers in NEO must recognize. Bottom line, if NEO's 100s of hospitals, clinics and medical centers and 1,000s of doctors get up to speed NOW, and collaborate, and turn their attention to excellence outside the operating room, and work strategically with enlightened IT professionals to embrace VistA region-wide, for the 4.4 million patients here, NEO will overnight become the global center of excellence in healthcare and the multi-billion-dollar medical information systems industry - for now, leadership, success, jobs and wealth go to some up-starts and VCs in LA. Read more...

with open source medical software execs

Transcript: This is Robin
"Roblimo" Miller from NewsForge. We're on the phone with Dr. Scott Shreeve,
M.D., a founder of Medsphere, and Dr. Larry Augustin, whose doctorate is a PhD
(in electrical engineering) and is now, as of the 25th of January, the chairman
of the board for Medsphere, and is also coming in as Medsphere gets a large
round -- $7.5 million worth -- of venture financing. And so, good afternoon,

Scott: Thanks Robin, it's good to be with you.

Larry: Good afternoon, Robin. Hey Robin, just to clarify, I'm coming in as CEO of the company and...

NewsForge: Coming in as CEO of the company...

Larry: Coming in as CEO of the company, and our chairman here is Dr. Ken Kizer.

NewsForge: Ah okay.

Larry: And Dr. Kizer is the former undersecretary of Health at the Veterans Administration.

NewsForge: And he joined the company?

Larry: And Scott, he's been with the company for a while.

Scott: Yeah, he's been with the company since the founding...

NewsForge: Okay.

Scott: 2002.

NewsForge: Okay. Well, Scott Shreeve... Scott and I
met... well, Scott and I met when Medsphere was just a gleam and a
couple of guys and an incipient office.

Scott: (laugh) Is that right?

NewsForge: And yet you folks are working with, as far as I know, the oldest, most mature current open source project, are you not?

Scott: That's correct! VistA actually had its origin in the MUMPS database language
which actually had its origin in the late 60s. VistA was started as a
project in the late 70s, actually in Oklahoma City, when it got its
birth, and it was first endorsed by the V.A. in 1982.

NewsForge: So wait a minute. Back in the 60s when Richard Stallman and I were both still in high school?

Scott: When you were just a gleam in the open source world's eye, that was it.

NewsForge: And not even free software had been invented.

Scott: (laugh)

NewsForge: And it's running what, 170 VA hospitals now?

Scott: Yeah, currently it's about 170 VA medical
centers, about 850 associated clinics and another 500 or so related
healthcare facilities, about 1300 in total.

NewsForge: So that would make it not just open
source's, but the world's most used medical practice and hospital
management software, wouldn't it?

Scott: Arguably it would be. The Veterans
Administration is the largest health care organization in the United
States and arguably the world, and this software is deployed uniformly
throughout the VA system.

NewsForge: Not only that, it's spreading worldwide. Last week, I was talking with people who are doing MyVistA from Malaysia so it's spreading there, as well.

Scott: That's correct! This application obviously has
worldwide implications developed in a government setting. And as you
know, Robin, governments throughout the world, governments are
primarily involved with healthcare delivery in other nations, and so
nations like Finland actually adopted VistA before the VA did
throughout their system. It's also been deployed in Egypt, translated
in Arabic, in Germany, and in several other smaller deployments in
Nigeria and throughout that part of the world.

NewsForge: And Medsphere is doing what? You're working as the installer, as the consultant, the ISV as it were?

Scott: Yes, since we... you know, Medsphere has taken
this public domain-slash-open source project, this code base that has
been out there for 20 years and actually put together the expertise and
experience as you create a commercially viable product that's supported
by our team and staff, both in the deployment and also in the ongoing
maintenance and support.

NewsForge: Where was your first actual Medsphere installation?

Scott: Our first implementation is actually in the
Midwest. There was a state organization that came to us, interested in
improving the quality of care they provided for their patients. There
were some patient-safety issues, there were standardization of care
issues, and they were looking for a healthcare application that could
help them improve in all those areas. Given the nature of this
organization, they are chronically underfunded. And as they went out to
look at healthcare information systems, they were struck by the fact
that while the technology is out there, it was just way outside their
grasp, given the financial dynamics of the current market offerings.

NewsForge: I was hearing last week that just a billing
module -- a billing module for the most popular proprietary hospital
management system -- just a billing module runs $700,000 in licensing.
Is that about right?

Scott: That would be accurate. That's correct.

NewsForge: And your licensing fee is?

Scott: We actually don't have a licensing fee, as part of the initial offering...

NewsForge: So, so wait a minute. You're telling me that
just on the billing alone, because these people were talking about 5
and 6 million dollars in licensing for a minimal small hospital package
in Malaysia, they were talking about... So you're saying that's a
saving right off the top.

Scott: Yes. That's one of the great benefits of open
source... that obviously some of those costs that traditionally had to
be recouped in the R&D can actually be displaced and not borne by
the customer.

NewsForge: How do your installation and maintenance fees compare to your proprietary competitors?

Scott: What we've actually done on the installation and
maintenance is that, that actually requires a certain number of bodies
and expertise and knowledge to continue to support, not only at the
customer help desk level but also in the ongoing maintenance of the
code, in terms of versioning, patch management and so forth. And so our
fees to charge for that service are actually slightly less than the
market competitors but not dramatically reduced as is our licensing fee

NewsForge: What about reliability? What about utility?
Obviously, you have a proven product. Have you had any comparables or
questions, or have you had any comparison installations?

Scott: What's interesting is that as people first take
a look, just to step back a little bit, if you look at health care IT
in general, there has been a groundswell of interest and movement and
momentum within healthcare IT, from dynamics related to patient safety,
healthcare quality, clinical efficiency and so forth.

So as people have gone up to look at implementing these systems they've
been struck by the cost and the challenge of actually acquiring them.
That's actually led people to look at alternatives, and obviously,
people have turned to the VistA information system which is currently
deployed at the largest healthcare organizations in the United States,
and this software happens to be developed by the federal government and
therefore has been in the public domain for about 20 years.

And so, again, what Medsphere has done is to take this and to create a
commercially viable product. As we go out and install this application,
we're finding that we're able to significantly we're able to put this
at a price point that makes it extremely attractive to the customer,
and to go ahead and continue to maintain and serve that. As people
start to look at return on investment, its significant savings could be
on an order of magnitude over the current proprietary products.

NewsForge: Order of magnitude.

Scott: Mm-hmm.

NewsForge: Now, is this applicable only to hospitals and clinics? What about individual and group (medical) practices?

Scott: It's a great question. One of the interesting
things about the VA system is that, not only is it the largest system,
but it also has one of the greatest varieties, in terms of the queue
care, ambulatory care, and long-term care settings. So, within the VA
system, this application has been utilized at a single provider's
practice all the way up to a 1500-bed academic medical center.

NewsForge: So the next time I'm talking to Dr. Craig
Hoffman of Healthcare America, the internist I patronize all too
frequently, and he says, "Well, what should I do as far as an open
source and hopefully Linux-based solution for my practice?" Should I
give him your phone number?

Scott: Our initial target market, Robin, is actually
the small-, the medium-sized hospital market. As we've looked at the
business model and the opportunity that we're pursuing, we felt that
the most underserved area that was ready and prepared for this
application was actually the small- to medium-sized hospital market.
This is typically a hospital, a community hospital, often times in a
rural setting, typically between a hundred to 500 beds and about half
the hospitals in the United States fall in that category.

NewsForge: Do you think you'll ever be able to talk to

somebody like Hoffman's group practice -- which has I believe about 30
physicians and a radiology and blood lab?

Scott: Yeah, absolutely. As I mentioned, our initial
target focus is to go into that small-, medium-sized hospital market.
We have to realize that that hospital, in those settings, typically is
fed by all these varieties, different clinics in those community
settings, whether it's a five percent physician group or a thirty
percent physician group, they all feed into the hospital. So our
thought is that if we can actually install the system and the software
at that nexus of care at the hospital, that we would then have the
opportunity to go back to the individual physicians who are using the
system at the hospital and want it for their own clinical information
system in their offices.

NewsForge: But what happens to that physician or group
of physicians who just calls you, the hospital isn't on board. They
just call you out of the blue. Are you ready for them yet?

Scott: Actually, we've chosen to be very selective
about how we go to market and we've chosen to go after a certain size,
small- to medium-sized hospital.

At this time we've chosen one office space project to go after to get
experience in that marketplace, and this is a clinic system in the
northeast part of the United States that actually has 23 different
clinics, of varying sizes from 3 physicians up to 10 physicians, that
we felt that this project was large enough that we could actually
demonstrate the utility of OpenVistA in that setting as opposed to
going to individual physician offices.

NewsForge: Okay. So you're still concentrating then on people with some scale.

Scott: Right. It's important to point out that, well,
VistA can scale to the very smallest offices up to the largest, we made
a business decision to concentrate as we kind of initially get a
toe-hold in the market to go after the sweet spot -- which we again
feel is the small- to medium-sized hospital.

NewsForge: Do you think other people should be
repackaging -- I know VistA's highly modular -- should be repackaging
or packaging some of the more practice-oriented and clinic-oriented
modules for smaller practices?

Scott: Absolutely. Of interest, the federal government
has also recognized the opportunity to work with VistA as a standard
and a common foundation, I guess, which to bill from. CMS has been
working with the VistA software to create what they're calling VistA
Office EHR.

NewsForge: What is CMS?

Scott: CMS is the Center for Medicare and Medicaid Services.
And they pay about... about 45 percent of all healthcare dollars flow
through CMS. And as one of the largest payers of healthcare services,
they wanted to, they want to exert their influence on the market.

NewsForge: So, wait a minute. What we're saying is,
this is all compatible and your file formats and such are absolutely
compatible with Medicare and the other big government reimbursers.

Scott: Well, one of the things that this project (CMS)
is endeavoring to do is to actually take this standard, raw form of
VistA and to package it up so that the small individual Dr. Hoffmans of
the world would actually be able to take a CD, download it in their
office and actually be able to use it. As part of that project, they're
also incorporating some of the quality metrics and also some of the
reimbursement technologies that are required to actually extract the
clinical data to translate that into financial data that can then be
billed out.

NewsForge: Back to Medsphere, I mean I would assume
that for your hospital clients that you do have the reimbursement
software integrated, correct?

Scott: Yeah, absolutely. One of the, again, the
missions of Medsphere is to take this raw technology and to actually
convert it into a commercially viable product. And one of those things
that we have to do to make it a commercially viable product is to
integrate it with the financial system. Most healthcare organizations
they have to have a fairly robust financial system to stay in business,
but what we're finding is about 90 percent of those same hospitals do
not have anything on the clinical documentation side. So what we find
that everywhere we go, is that most of these hospitals already have a
financial system that needs to be integrated with the VistA system.

Of interest, the VA has not had to bill like a private sector hospital.
Therefore, they've never really started with a financial system, they
started first and focused on the actual clinical information system. Of
interest, about 90, 80 percent of all physicians in the United States
rotate through VA at some point during their training. And that's
exactly how I was exposed to the system and given that breadth of
exposure. As we take this out to market, many people are familiar with
the VistA system.

NewsForge: So that cuts a lot of training both in the public, smaller public hospitals and also in private hospitals, I would assume.

Scott: Yeah. What's interesting is, again, the whole
concept is to reuse what's already there, whether that be the software
itself or the actual experience of the users. Essentially, we have a
huge installed base in terms of knowing the number of facilities using
this application, also the number of physicians who have been exposed
to this. This latent group of physicians who have been seeded
throughout the country, with exposure and knowledge of VistA.

And what's of greatest interest and importance is that, almost
uniformly, if you ask those physicians about their experience with
VistA, it'll be a positive one. There are several interesting articles
documenting the ability of these physicians to quickly grasp the
technology to work with it and then to actually have it help them
improve the care they provide their patients.

NewsForge: Let's talk about money for a minute now.
Obviously, the press release you've recently sent out, the headline
says, "Medsphere raises $7.5 million in latest round of venture

That's exciting. Somebody, apparently, as your capital
partners and your existing investors, Thomas Weisel Venture Partners
and Wasatch Venture Fund, believe that there is money to be made here.
I assume you do too since (laughter) you've been working on this as I
recall, originally with no salary (laughter). I remember... I remember,
wasn't I buying you drinks because you (laughter) were worried about
your expenses at one point? (laughter)

Scott: Robin, your memory serves you too well I think
in this case. But yeah. What's interesting again is that this whole
rise of open source, I mean there are so many convergence of trends
that are enabling this opportunity.

First of all, within healthcare: The fact that there's a drive towards
improved quality. And that's coming about because of a result of some
patient safety issues that were becoming more apparent. There's the
total waste and ineffiencies in healthcare also driving these
improvements. And people view healthcare IT as an enabler of change to
get to that goal of quality. At the same time, we're having this whole
convergence on the technology infrastructure side with Linux rising to
a standard of acceptability and the model of open source coming into
prominence, and companies like Red Hat and MySQL actually developing
sustainable business models.

And what we found was interesting, Robin, is because of our unique
experiences of being physicians and also people who are involved in
technology... is that there's a lot of parallels between open source
and healthcare. You know, the drive for standards; there's a drive for
interoperability; there's a drive for peer review; there's a drive for
high need for security. And as these parallels started to play out we
really saw an opportunity to take this proven technology, create a
robust product, provide the services necessary to deliver it, which has
never been done before in the private sector, and then to partner with
organizations that can help us deliver an end-to-end solution.

That's really the opportunity that we're pursuing and we appreciate the
fact that our capital partners recognize that there is an opportunity
to not only provide a great service and deliver better care, but also
to have a financially robust company to work with.

NewsForge: Of course with Larry Augustin, who, I'd
better insert this disclaimer someplace, is also the chairman of the
board for VA Software, which owns OSTG, which employs me, so we both
now, I guess, work for Larry, don't we?

Scott: (laughing) Sounds like it!

NewsForge: And of course he knows how to build
investment capital and how people do and don't. I know Larry not only
from work but also from the long-running free software business, email,
discussion lists. So Larry, obviously you're staking a lot of your
personal reputation on this, are you not?

Larry: Well yes I am Robin, and I'll tell you, I'll
give you another example. I was talking to a CIO of a small hospital
just last week. And that CIO was telling me that a year and a half ago
he was looking for VistA. He saw it out there, he thought, "Gee, this
would be a great thing to bring in."

But his problem was, he couldn't find anyone to support it. And many of
these hospitals have very, very minimal IT staff. They don't have a lot
of people, they don't have the expertise to go out and bring in this
code and just install it. They need help. And it's a great market.
There are a lot of them out there.

I think Scott said, as you look out the market, small and medium
hospitals, 90 to 95 percent of them don't have this kind of integrated
clinical, comprehensive clinical system that we can give them with

NewsForge: And you're getting ready to bring it to them and hopefully make a few dollars in the process, right? (laughter)

Larry: That's right, that's right.

Scott: You know, what's interesting Robin, is that you
know, we've sometimes in the past been compared to you know, Red Hat,
which takes, you know Linux, and packages and delivers and services
that. What's interesting with VistA is that it's such a comprehensive
application. It has over a hundred modules, it covers all the clinical,
financial and administrative needs of the healthcare organization. It's
designed to work in the ambulatory, acute care and long-term care
settings. It's just, the depth and breadth of this application is just

And so in order for organizations to actually realize the full benefit
of this, it takes significant expertise, and knowledge and experience
to deploy, maintain and support that.

What Medsphere has done as part of this is to really productize this,
to actually enable customers to actually use this technology. It's been
out there for twenty years. I mean, there's a reason why it hasn't been
delivered to date, and we think that one of the primary drivers is that
there's never been an organization that can actually create a product
and deliver that product to healthcare organizations.

NewsForge: Well I'm glad there is one now, and gentlemen, I thank you so much for your time.