The federal government is laying the groundwork for what could be a major push toward digitizing the healthcare industry.

Earlier this week, the Department of Health and Human Services issued a list of guidelines (click here for PDF) for protecting patient privacy as medical records are brought online.

"Finding the balance between increase access to information and privacy is very important. If we don't have it, we won't succeed," HHS Secretary Mike Leavitt said in a statement. "Consumers shouldn't be in a position to have to accept privacy risks they don't want. Each consumer should be able to choose products and services that best fit their health needs and privacy preferences."

More recently, Medicare announced an "e-Prescribing Incentive Program" to encourage physicians to issue prescriptions online. Medicare, which is administered by HHS, will begin offering doctors bonus payments for prescribing medicine electronically Jan. 1, 2009. Starting in 2012, Medicare will penalize doctors who continue to write prescriptions on paper.

The HHS initiatives come amid growing calls for the government to take the lead in e-healthcare, which supporters claim will lower medical costs and reduce errors. Online medical records would also enable doctors to instantly call up the file of a new patient, rather than waiting for a fax or mailed copy to arrive.

E-prescriptions are intended to cut down on mix-ups at the pharmacy, where patients are often given the wrong medicine or an incorrect dosage.

An online prescription system could also alert doctors and pharmacists when a patient is taking medicine that could have a harmful interaction with a drug they are about to prescribe.

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President-elect Obama has already signaled his commitment to include provisions for bringing the medical industry online in his plans for healthcare reform.

Obama recently tapped former Senate Majority Leader Tom Daschle to head HHS in his administration. Daschle will also serve as director of a new White House Office of Health Reform, Obama said.

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Health IT Joins The 21st Century
Employers and government are ganging up on the health care industry to force more transparency in patient information and costs.

Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) have both rolled out ambitious IT health initiatives aimed at digitizing medical records.

The Business Software Alliance, the trade group representing the software industry and many hardware companies, is calling on the government to press forward with e-healthcare provisions in its policy agenda for the coming year.

But bringing medical records online has raised significant privacy concerns. The new HHS guidelines call for strong technical and administrative safeguards to protect patients' files.

They also ask medical professionals and administrators to give patients the ability to control how their information is shared and provide them with a mechanism for disputing errors.

Some medical experts have challenged the notion that privacy is the main roadblock to digitizing the healthcare industry. From a technical perspective, implementing adequate safeguards would be trivial, they say, suggesting that the real impediment is a resistance to change among many doctors.

Still, the medical community will need to take steps to demonstrate to patients that their records are secure before they'll buy into e-healthcare, according to Leavitt.

"Over time, consumer confidence in the handling of health information is likely to grow just as consumer confidence in online banking has grown, but that won't happen without similar protections and transparency about the use of their information," he said.

HHS also published a series of guidance documents for healthcare organizations to implement the new principles.