As the U.S. government plans to spend billions to light a fire under the business of electronic medical records, Athenahealth Inc. (ATHN) has created its own "burn unit."

Hospitals and medical practices are looking to update their electronic medical record systems, spurred in part by the government's offering to spend $27.4 billion in this area over the next decade. Athenahealth, however, says much of that investment is being wasted on old-legacy technology that will be obsolete sooner rather than later.

"There obviously was a frantic, blind buying spree that we think is more or less coming to a close," Athenahealth Chairman and Chief Executive Jonathan Bush said Wednesday in an interview. Athenahealth is a provider of Internet-based health-care services that automate certain back-office tasks like billing and medical records.

"The next big thing I'm seeing is the bog down," he said, referring to the amount of medical practices that are installing EMR systems only to find physicians are finding them too complex to use.

As a result, Athenahealth established a unit to help groups that haven't had success with their EMR systems. Athenahealth is now attempting to convert these groups to its own cloud-based system. About 35% of Athenahealth's new EMR business comes from companies that have previously had digitized systems, according to Bush.

"Lots of these EMRs are very old, software-type products that are being sold by very old vendors," he said.

Athenahealth's approach to the unit involves coming in, shutting down the original systems, extracting data and putting information on its own cloud-based system.

Once Athenahealth converts an EMR, the company takes a "velvet rope" approach to involvement by physicians, who don't necessarily have to learn how to use the system. Receptionists can use the system to check patients in and out. Nurses, with a physician's approval, can place orders. Doctors steer clear of the EMR system if they choose, instead continuing to either draw charts or diagrams to document clinical visits. Athenahealth is then responsible for scanning them into its own system.

Bush described the viability of the system, but he acknowledged the biggest factor plaguing the company is visibility. "Most doctors don't know we exist, and most hospitals don't know we exist," he said.

Athenahealth attempts to differentiate itself from its competition by offering open, cloud-based health-care services intended to encourage communication among all parties, such as hospitals, physicians and patients.

The company recently formed an alliance with Microsoft Corp. (MSFT) that connects its services, including AthenaClinicals and AthenaCollector, with Microsoft Amalga, an enterprise health intelligence platform.

Athenahealth shares closed Wednesday up 3.3% at $45.84. The stock has more than doubled since July and hit an all-time high of $50.56 in February. The company has a $1.6 billion market capitalization and trades at 59 times expected earnings, which is more expensive than competitors Allscripts Healthcare Solutions Inc. (MDRX) and Quality Systems Inc. (QSII), according to FactSet Research.

-By Steven Russolillo, Dow Jones Newswires; 212-416-2180; steven.russolillo@dowjones.com

--Katherine Hobson contributed to this report.
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