The Trillion-Dollar Conundrum: Health Information Technology

NCPA August 29, 2012

As annual U.S. health care expenditures climb towards $3 trillion and with spending forecast to exceed $4.5 trillion by 2020, many analysts hope that electronic medical records (EMR) can stem the tide. Others, however, remain cautious. The Congressional Budget Office, for example, has explicitly stated its uncertainty as to the benefits EMRs may yield.

Nevertheless, the now Supreme Court-sanctioned Patient Protection and Affordable Care Act (PPACA) will use several of its provisions in order to promote wider adoption of this questionable technology.

·       The PPACA directs the establishment of quality reporting measures that likely will require providers to adopt EMRs in order to comply.

·       The PPACA creates a new "shared savings" program for Medicare; participation in this program is predicated on the use of EMRs.

·       Finally, the PPACA encourages providers to apply to participate in a range of new programs and gives preference to those that have adopted EMRs.

The driving force behind this policy advocacy is that, according to the law's supporters, EMR adoption will yield cost savings. This conclusion, however, has not been definitively proven.

Exploring the validity of this claim, a research team from the National Bureau of Economic Research conducted a field survey of numerous medical establishments that have integrated EMRs into their information technology infrastructure. Chief among their findings was the general conclusion that EMRs can allow institutions to save money, but that this is largely dependent on other factors that cause this result not to hold true for all establishments.

·       They find that hospitals in urban areas stand a great deal more to benefit from the adoption of EMRs than hospitals that are not similarly situated.

·       Moreover, and consistent with expectations, the research team found that the adoption of EMRs in hospitals with significant information technology expertise allowed for long-term savings, while the opposite case did not.

·       Finally, they found that regardless of the characteristics of the establishment, almost all hospitals saw costs increase upon adoption of EMRs for at least a few years.

The overall conclusion, then, might be that EMRs are not the correct solution for all hospitals. This might explain why the private sector has been sluggish in adopting them of its own accord.

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Source: David Dranove, Christopher Forman, Avi Goldfarb and Shane Greenstein, "The Trillion-Dollar Conundrum: Complementarities and Health Information Technology," National Bureau of Economic Research, August 2012.