Health information technology

May 20, 2008

Many people believe that health information technology (health IT) has the potential to transform the practice of health care by reducing costs and improving quality. CBO just released a significant study, prepared at the request of the Chairman of the Senate Budget Committee, examining the evidence on the costs and benefits of health information technology.

Health IT generally refers to computer applications for the practice of medicine. (Those applications may include computerized entry systems for physicians orders for tests or medications, support systems for clinical decisionmaking, and electronic prescribing of medications.) Relatively few providersas of 2006, about 12 percent of physicians and 11 percent of hospitalshave adopted health IT.

When used effectively, health IT can enable providers to deliver health care more efficiently. For example, it can:

  • Eliminate the use of medical transcription and allow a physician to enter notes about a patients condition and care directly into a computerized record;
  • Eliminate or substantially reduce the need to physically pull medical charts from office files for patients visits;
  • Prompt providers to prescribe generic medicines instead of more costly brand-name drugs; and
  • Reduce the duplication of diagnostic tests.

Indeed, many analysts and policymakers believe that health IT is a necessary ingredient for improving the efficiency and quality of health care in the United States. Research does indicate that in some instances, health IT appears to have reduced the cost of providing health care, helped eliminate inappropriate services, and improved the quality of care. In general, however, health IT appears to be necessary but not sufficient to generate cost savings; that is, health IT can be an essential component of an effort to reduce cost (and improve quality), but by itself it typically does not produce a reduction in costs.

The most auspicious examples involving health IT have tended to involve relatively integrated health systems. For providers and hospitals that are not part of integrated systems, however, the benefits of health IT are not as easy to capture, and perhaps not coincidentally, those physicians and facilities have adopted electronic health records (EHRs, the primary health IT package commonly purchased by a provider) at a much slower rate. For example, office-based physicians in particular may see no benefit if they purchase such a product and may even suffer financial harm. Even though the use of health IT could generate cost savings for the health system at large that might offset the EHRs cost, many physicians might not be able to reduce their office expenses or increase their revenue sufficiently to pay for it.

The search for improved efficiency in delivering health care has prompted numerous proposals for increasing the adoption of health IT. For example, a recent study by the RAND Corporation estimated about $80 billion in net annual savings that is potentially attributable to such technology. This study has received significant attention, but unfortunately it suffers from significant flaws and is therefore not an appropriate guide to estimating the effects of legislative proposals aimed at boosting the use of health IT:

  • The RAND researchers attempted to measure the potential impact of widespread adoption of health IT, assuming that it was used effectivelyrather than the likely impact, which would take account of factors that might impede its effective use. For example, health care financing and delivery are now organized in such a way that the payment methods of many private and public health insurers do not reward providers for reducing costsand may even penalize them for doing so.
  • The RAND study is based solely on empirical studies from the literature that found positive effects for the implementation of health IT systems; it excluded the studies of health IT, even those published in peer-reviewed journals, that failed to find favorable results. The decision to ignore evidence of zero or negative net savings clearly biases any estimate of the actual impact of health IT on spending.
  • The RAND study was not intended to be an estimate of savings measured against the rates of adoption that would occur under current law, but rather, against the extent of adoption in 2004. That is, the study did not allow for growth in adoption even without a policy intervention, as CBO would in a cost estimate for a legislative proposal.

One significant potential benefit of health IT that has thus far gone relatively unexamined involves its role in comparative effectiveness research. Widespread use of health IT could make available large amounts of data on patients care and health, which could be used for empirical research that might not only improve the quality of health care but also help make the delivery of services more efficient. By making clinical data easier to collect and analyze, health IT systems could support rigorous studies to compare the effectiveness of different treatments for a given disease or condition. Then, in response to the studies findings, they could aid in implementing changes in the kinds of care provided and the way those services are delivered, and track progress in carrying out the changes. Such comparative effectiveness studies would, on average, probably lead to reductions in total spending for health care because of the tendency in the current health care system to adopt ever more expensive treatments even though rigorous evidence about their effectiveness is lacking. The likelihood of such reductions in spending would be higher if the studies findings were linked to the payments that providers received or the cost sharing that patients faced.

If the federal government chose to intervene directly to promote the use of health IT, it could do so by subsidizing that use or by imposing a penalty on failing to use a health IT system. From a budgetary perspective, the subsidization approach is less likely to generate cost savings for the federal government because it involves up-front costs. (It is also possible that, for any given underlying financial incentive, a penalty may be more effective at triggering adoption than a subsidy if a penalty carries a negative connotation that does not apply to failing to receive a subsidy.)

Stuart Hagen of CBOs Health and Human Resources Division and Peter Richmond, formerly of CBO, prepared the report under the supervision of Bruce Vavrichek and James Baumgardner.