OAKLAND, CA – The application service provider (ASP) hosting model for electronic health records is a viable alternative to in-house EHRs for many small to medium-size physician practices, claims a recent report commissioned by the California Healthcare Foundation.

“Physician Practices: Are Application Service Providers Right for You?” was written by the Long Beach, Calif.-based First Consulting Group, and describes a growing segment of the EHR market that will offer physicians more choices as they determine how to spend money on IT resources.

ASP solutions differ from traditional EHR software in that an ASP-hosted EHR is not housed at a physician practice, but is hosted by another organization, which also provides customer support and service. The physician practice makes monthly payments to the host in order to “rent” the application.

“ASPs have the potential to be dominant in certain sectors of the market,” said Jonah Frohlich, CHF senior program officer. “They are particularly appealing to small practices that encounter many barriers to entry in the current EHR environment.”

Frohlich contends that the ideal customer for an ASP is a physician practice or community clinic that wants to move to an EHR but has minimal access to capital. Because there are no upfront licensing costs for subscribers to an ASP-hosted EHR, the average five-physician practice could save over $30,000 in first-year costs.

“As long as practices are comfortable with allowing another organization to host the hardware, this is an excellent model for acquiring an EHR,” said Frohlich. “And the ASP model could be especially appealing to community clinics.”

EHR vendors sometimes serve as ASPs, although many different organizations can host clinical applications. One increasingly popular hosting option is the independent physician association. Large IPAs can afford to invest in expensive IT and spread the costs across their network.

Brown & Toland, an IPA in the San Francisco Bay area, has done just that. The 1,500-physician IPA hosts the Allscripts Touchworks EHR, and hopes to expand its ASP service to between 100 and 150 small to mid-sized physician offices in the next two years.

“We plan to spend more than $12 million on this project through 2008,” said Peter Alperin, MD, Brown & Toland’s director of medical informatics. “Since we make most of the infrastructure investment, the client only needs to purchase off-the-shelf technology. So the price point is very favorable.”

It is both lower cost and the “comfort factor” that impels practices to choose an ASP-hosted option, say many EHR vendors who are enthusiastic about the future of the model. Girish Kumar Navani, CEO of eClinicalWorks, says his company offers a unified EMR and practice management product that can be deployed either in-house or via an ASP.

“In most cases, the decision comes down to how comfortable a practice feels with managing the servers in-house,” Navani said. “But looking into the future – on a 20-year curve – I believe everything will be ASP, at least for smaller clients. It may be premature to say that now, but there will be a shift.”