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To Invest or Not to Invest Federal Dollars in Health IT

02/21/2013 12:24 pm 12:24:45 | Updated Apr 13, 2013

The Obama administration made health care reform one of its top priorities during the president's first term, and oversaw the passing of the controversial $787 Billion American Recovery and Reinvestment Act (ARRA) of 2009. This law provides $19 Billion in incentives for health care companies to implement information technology systems such as Electronic Health Record (EHR), in an effort to make the industry more efficient and reduce costs. Such program is known as Title XIII, the Health Information Technology for Economic and Clinical Health Act, or HITECH.

While the HITECH has already paid out $7.7 billion as of November 2012, with over 300,000 medical professionals registered -- more than half the eligible workforce -- and over 75 percent of hospitals, the industry struggles to meet the timeline for its meaningful use stages. As of December 2012, only one-third of health care professionals have been able to fully meet the requirements for Stage 1, posing the question of whether investing federal dollars on health care IT is effective or not.

Over the past decade, many have spoken about the potential impact of modern information technology systems in the health care field. In 2005, an article from RAND stated that "the potential efficiency savings for both inpatient and outpatient care could average over $77 billion per year," whereas a recent op-ed from Forbes just also stated that "state-of-the art technology was going to drastically lower costs -- on the order of $80 billion a year."

A recent research study conducted by the Central Utah Multispecialty Clinic (CUMC), a 59-physician group with practices in nine locations treating 200 thousand active patients, after implementing EMR technology, reported "immediate savings of $952 thousand over a period of one year, with anticipated future savings of more than $8.2 million in the next five years." The clinic reported the following five factors as contributors of such savings:

  1. Expenses for transcription of physicians' dictated clinical notes
  2. Expenses for pulling, filing, and maintaining charts for current patients
  3. Expenses for developing charts for new patients, including the purchase of paper supplies and personnel costs
  4. Changes in reimbursement due to coding levels
  5. Physical space requirements for storage of patient charts

It is therefore clear, from continuously published evidence, that the implementation of EMR (Electronic Medical Record) technology produces significant savings in the long run, and may or may not produce immediate savings, depending on implementation issues and costs. The question, from a macroeconomic perspective, is whether the implementation of EMR technology does generate savings for the Centers of Medicare and Medicaid Services (CMS).

An oversimplified comparison, in the finance services industry, is the use of traditional credit card terminals versus computer-based virtual terminals. If the merchant still uses a traditional credit card terminal, the payment processor has to support a telephony gateway in order to receive the payment data from the terminal, which is more costly. If the merchant were to upgrade to a computer-based credit card terminal, the data would be transmitted directly over the Internet, which is less expensive. How would the bank and payment processor incentivize merchants to upgrade from traditional credit card terminals to computer-based terminals? In this case, some of the cost savings are passed on to the merchant as an incentive.

In the case of paper-based medical records versus EMR technology, the analogy is not as simply drawn, but the impact of error reduction and overall improved quality outcomes, ultimately traces back as savings to health care payors, including CMS. However, the public does not seem to agree with this idea, given that a recent post-election survey conducted by PwC's Health Research Institute, concluded that four out of 10 voters are against federal investment
in health care IT:

"Consumers see the value of research and development but not health information technology investments -- consumers in the HRI survey supported reductions in HIT spending as a way to trim the deficit, but want to protect R&D ... The industry faces a challenge in articulating the case for technology investment."

Because the federal government is the single largest purchaser of health care services, it is expected that it would be a key, and perhaps decisive, player in the industry. A case study by Booz Allen Hamilton concluded, "Government is uniquely positioned to address health care innovation because of its dominant role in health care funding and regulation."

Therefore, it would be also expected that the federal government would drive the issue of EMR adoption, based on the cost benefits that are desired, in order to control the cost for care of existing chronically-ill population, not to mention the baby-boomers. Moreover, according to some experts, "The private sector cannot overcome the structural divisions in U.S. health care, the financial disincentives for providers and other key players, and the closing off of capital to potential technology developers."

Given all the evidence presented here, it would be unreasonable to present a case against investment of federal dollars in health care IT. Rather, I think it is absolutely necessary to ensure that the value proposition of such investments is better communicated to the general public. It can also be assumed that the public's opinion on this matter will probably change as the impact of health care IT becomes more tangible, but inevitably, it will also be subject to continued criticism and political polarization.

What do YOU think? Sound off in the comments section below...

Health IT and the ARRA