The Office of the National Coordinator for Health IT just released its budget plan for 2014, which would increase its $61 million budget to $78 million, a 28 percent jump. But it’s a little-reported line item that’s causing a stir among entrepreneurs — a proposal to boost fees for electronic health record vendors.

The ONC is the division within the U.S. Department of Health and Human Services that leads many initiatives laid out in the Affordable Care Act.

The funding boost in the Obama administration’s proposed budget is a response to the expanding marketplace for health IT. The ONC reports that a new “revenue source” is needed to help it handle the “increasing workload.”

A little-reported line item proposes amped up fees for electronic health record vendors and is a cause for concern for entrepreneurs.

The $1 million user fee “would provide ONC with the necessary resources to meet the increasing demands of health IT vendors,” the plan stipulates. Sources tell me it has a 50 percent chance of being authorized by Congress.

It’s unclear at this point how the ONC would levy the user fee, but it’s plausible that it would be passed down to doctors.

Lauren Fifield, a senior strategist for the free electronic medical record startup Practice Fusion, said the user fee would not be a strain on the industry. The bigger concern is the “high likelihood” that the ONC will use these funds to take on more projects and soon require higher user fee revenues.

Already, EHR vendors are speculating that a user fee charge is the ONC’s way of assuming regulatory authority. “This would be agency creep,” said Fifield, and urged the FDA, FCC and ONC to come together to clarify their roles.

Health IT startups may eventually face charges on revenues akin to the maligned 2.3 percent excise tax on medical devices.

Fifled said this might also create confusion and overregulation for electronic health record developers and entrepreneurs. “The user fee is a slippery slope that could create an even more dysfunctional health IT market,” she said.

Also featured in the 126 pages of program descriptions are several health IT initiatives, including a commitment to examining patient safety, and data security. We’ll be discussing these topics and more at our upcoming HealthBeat conference.

Doctor with electronic health record // Shutterstock

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The Senate has backed a repeal of a 2.3 percent tax on medical device makers that was enacted as part of Obamacare.

Silicon Valley’s health-technology entrepreneurs view this move as a step in the right direction, whether or not the bill passes.

“It could move forward and, more importantly represents how much the tax is disfavored,” said Practice Fusion‘s senior policy advisor Lauren Fifield. Practice Fusion is a San Francisco-based startup that has been keeping a watchful eye on hearings in Congress this week.

As VentureBeat reported, the Food and Drug Administration is under pressure to determine which “grey area” mobile medical apps should be regulated — and potentially taxed as medical devices.

“This may bode well for med mobile app developers — if the Senate is voting to repeal the tax for devices, there’s no way they’d support a tax on entrepreneurs,” said Fifield.

Happtique’s Ben Chodor was brought in to testify in Congress this week, and represent the voice of health entrepreneurs.

Chodor is outspokenly critical about the tax on medical devices, especially considering that it could prompt bio-tech and life science investors to look at international markets where tax rates are lower. “I think and believe they listened,” he said.

According to Politico, the language was included in an non-binding amendment to the budget resolution, meaning the tax will remain in place regardless of whether the resolution passes. But it does demonstrate growing bi-partisan opposition to the tax in the nation’s capital.

“The importance of this vote cannot be overstated,” said Utah Republican Sen. Orrin Hatch, who introduced the amendment. “For the first time, Democrats and Republicans have come together in recognizing how bad this tax is. We cannot stop here. We must continue the fight to get rid of this tax.”

As Newsmax points out, most of the Democrats who backed this Hatch amendment are from states that are home to numerous medical device-makers.

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But that might be about to change, according to Jeff Tangney, a serial entrepreneur who founded Epocrates, the medical information company, and is currently running Doximity, a Facebook-style app for doctors that is growing fast, with more than one in six doctors already on the network.

VentureBeat had a chance to chat with Tangney about the future of investment in the medical space.

VentureBeat: We don’t hear all that much about investing in medicine.

Tangney: No, health tech hasn’t even really been recognized as a category until the last 10 years. There wasn’t really too much venture investment in health tech, but that’s changing. With the passing of the Affordable Care Act and the recognition that health care is 18 percent of the U.S. economy … some VCs have started looking in.

VentureBeat: What will national health care do for the space?

Tangney: The first changes of Obamacare haven’t really changed all that much yet – the biggest changes are still coming up. In 2014, the insurance exchanges start at a state level. Until then, there’s a lot of uncertainty … which actually favors the venture community.

The medical community is not quick to change over time – venture community is the only one that can react that fast. For example, we just raised a $17M round a few months ago.

VentureBeat: What’s hard about investing in health care?

Tangney: Well, you see a lot of folks sitting on their hands due to regulation.

For example, it’s illegal for a doctor to send an email about a patient. It’s illegal to send an SMS. And the internet really isn’t used in healthcare. It’s a little like a third-world country … where they’re skipping PCs and going straight to smartphones.

Over time that will change.

VentureBeat: What is working … who’s getting VC in health?

Tangney: ZocDoc, HealthApp and CastLight are doing well. CastLight, which creates a very cool employer portal for lower health care costs, raised $100 million earlier this year.

ZocDoc, with does online scheduling, raised $70 million a few months before that. And PracticeFusion raised $34M round to help usher in electronic health records. We’ve raised $27 million at Doximity … so there’s easily $200 million raised in the last year.

VentureBeat: What do you see in the future?

Tangney: Investors who are focusing on health care are starting to place their bets … as soon as we get out of this regulatory uncertainty, things will start to move.

Most people don’t know it, but Sequoia’s biggest investment ever was in an urgent care center … MedExpress, about two or three years ago. They’re seeing this shift to insurance exchanges, where, instead of someone paying  $3,000 for treatment in a hospital, they’re getting essentially the same service for $1,000 in a small health care facility.

VentureBeat: How does the growing self-quantification movement fit into this?

Tangney: Well, I wear a Jawbone wristband, but the knock on Sand Hill Road is that no-one’s been able to turn it into a big business yet.

The question is: Where’s the cross-the-chasm product?

The hotbed of this is San Diego … QualComm has invested a lot, and West Wireless Institute has  put $500 million into quantification. They’re trying to come up with cool new technology that the U.S. can sell to the rest of the world … to the wealthy well.

I have a Sonos headband too. It’s really ugly, really geeky, and measures your sleep patterns. What I’ve learned is that to get a sleep score of 100, I need to be intimate with my wife first. [laughing]

Those are all cool things, but even Nike hasn’t been able to really crack this market yet.

photo credit: Viktor Hertz via photopin cc

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HealthBeat 2013 is a new conference showcasing how technology is transforming health care. We'll explore how IT is driving out inefficiencies on the hospital, practice, and patient levels. Check out full event details here, and register here.

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