THCB

The Trillion Dollar Conundrum

In Tuesday’s Wall Street Journal Op-Ed pages, physicians from Harvard and University Pennsylvania Medical Schools criticize subsidies for expanding the use of health information technology (HIT). The physicians cite a recent review article that failed to find consistent evidence of cost savings associated with HIT adoption. If true, this is bad news for the health economy, as supporters claim that HIT could cut health spending by as much as $1 trillion over the next decade.

How can something that is so avidly supported by most health policy analysts have such a poor track record in practice? In a new NBER working paper by myself, Avi Goldfarb, Chris Forman, and Shane Greenstein, we label this the “Trillion Dollar Conundrum.” One explanation may be that most HIT studies examine basic technologies such as clinical data repositories, while most of the buzz about HIT focuses on advanced technologies such as Computerized Physician Order Entry. In our paper, we offer a rather different explanation for the conundrum, one that would have eluded physicians and other health services researchers who failed to consider the management side of HIT.

My coauthors on this paper are experts on business information technology. They are not health services researchers. When I approached them to work on this topic, they insisted on viewing HIT much as one would view any business process innovation. As I have learned, this is by far the best way to study most any issue in healthcare management. Those who advocate that “healthcare is unique” – usually by ignoring broadly applicable theories and methodologies—often strain to explain data that are easily understood using more general frameworks. Such is the case with HIT.

Health services researchers have analyzed HIT much as they would analyze a new medical intervention. Some patients receive the treatment, others receive a placebo, and the treatment is deemed “successful” if the treatment group fares better than the control group and the difference passes statistical muster. While this methodology inspires a certain level of confidence in medicine, it has a critical shortcoming that has only recently been addressed through “personalized medicine.” The intervention might be effective for only some of the treatment group, and might be harmful to others. The typical research design masks these heterogeneous effects.

Our study articulates why we would expect heterogeneous effects of HIT and finds strong supporting evidence in the data. The key is to view HIT as a business process innovation. Like other such innovations, successful implementation requires complementary human capital. In other words, HIT does not operate itself. Skilled individuals must install it and train hospital personnel on how to use it. Hospital personnel must learn how to use the software and how to adapt it to their idiosyncratic needs. Not surprisingly, some individuals are better at this than others.

We argue that complementary human capital is most abundant in areas where there is a strong general IT presence – think the Bay Area or Seattle. Thus, El Camino Hospital near Palo Alto was an early and successful adopter of HIT. At the same time, hospitals located near the headquarters of major HIT firms, are more likely to get better vendor support. Thus, hospitals in Milwaukee have been very successful with the Epic system. (Epic is located near Madison.) Finally, hospitals with experience with primitive HIT are likely better prepared to take advantage of advanced HIT.

We find strong evidence that human capital is vitally important to the success of HIT. We find that hospitals adopting advanced HIT experience, on average a 1-2 percent increase in costs (including amortized HIT costs.) But this masks heterogeneous effects. Hospitals lacking complementary human capital see their costs increase by 2-4 percent, while those with complementary human capital enjoy cost savings of 2-4 percent. All of these findings are statistically significant.

The most exciting thing about these findings is that complementary human capital is not static. All of us are improving our general IT capabilities just by using our smart phones and the like. Hospital staff will, over time, improve their HIT-specific human capital. The benefits of HIT enjoyed by hospitals fortunate enough to have complementary human capital will almost surely spread to most hospitals. We would be foolhardy to promise $1 trillion in savings, but we do expect substantial savings. It is far more foolhardy to claim that the tepid average performance to date is the end of the story.

Postscript: Next week I will attend the Annual Health Economics Conference at Stanford. I have the privilege of discussing a new paper by Jeff McCullough, Steve Parente, and Bob Town that studies the impact of HIT on outcomes. Most studies have failed to find any benefits for the average patient. After interviewing many providers, these authors conclude that the benefits are likely concentrated on patients whose care requires substantial coordination and information transfer. And they find this — HIT improves outcomes (measured as mortality in this paper) for the minority of patients likely to enjoy the benefits of HIT but are otherwise unchanged. As with my own paper, this study shows that HIT is complex and the benefits are likely to be heterogeneous. I do not believe it is a coincidence that both of these studies were conducted by management professors.

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

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BobbyGDr. MikeMidwest docS Silverstein, MDCurly Harrison, MD Recent comment authors
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Wendell Murray
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Fair enough. Much of your criticism of EMR systems no doubt is also correct.

southern doc
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southern doc

“my reply will continue to be that the USA healthcare system is absurd”

Agree completely on that. I would only say that EMRs as currently designed and used serve to preserve and to strengthen the absurdities, not to address the fundamental problems.

Wendell Murray
Guest

Last comment from me. Patients, qua consumers, will start to expect test results, physicians’ notes, etc. to be provided electronically before meeting another physician. Needless to say this will not happen immediately, but it will eventually become routine. If a patient has had a test done or anything else that provides information to a subsequent physician, particularly if the patient is paying out-of-pocket for services through a co-payment arrangement with an insurer, the availability of data electronically will lead to the elimination of duplication. It is a complete waste to the patient/payer and he or she knows it. And yes,… Read more »

southern doc
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southern doc

You’re a moving target.

You say: The perennial problem of patients having tests duplicated . . . is obviated.

I say: EMRs have nothing to do with the cause of or the solution to the problem of unnecessary testing, and they have been shown to increase the number of test ordered.

You reply: USA healthcare system is absurd.

Wendell Murray
Guest

“Tests are repeated because the patient’s condition has changed, because previous testing indicated the need to repeat it, or because someone is making a buck by repeating it.”

These and the other related points have to do with the absurdity of the USA healthcare system, both delivery and payment. Nothing to do with EMR systems.

southern doc
Guest
southern doc

Disagree with about everything you say, but just one point: Tests are repeated because the patient’s condition has changed, because previous testing indicated the need to repeat it, or because someone is making a buck by repeating it. Show up in the same ER once a month for the next year complaining of the worst headache of your life and you will get a new scan every time. Send a non-Medicare patient to Mayo with complete records and every test get will get repeated two or three times. EMRs make all this easier, not more difficult. The “tests are repeated… Read more »

BobbyG
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Also: what about the liability aspect of acting on tests ordered by someone else if you are now the physician of record? Just wondering.

Wendell Murray
Guest

“digging ditches and the feds told me I had to do it with a stick of butter, I’d say the stick of butter stinks.” Overstatement to say the least. I stick by my assertion regarding the active disdain – based on lack of experience and knowledge – of far too many physicians regarding the value of computer-based technology for clinical data recording and manipulation. “I don’t think that’s true.” The advantage of digitally available clinical unquestionably advances the health status of patients. The perennial problem of patients having tests duplicated and relevant data not communicated from one physician to another… Read more »

Wendell Murray
Guest

southern doc: Statement is not comprehensible. Please elaborate. Also no answer to question regarding your software development experience from youth to the present.

southern doc
Guest
southern doc

Maybe I misunderstood you. I was responding to “that otherwise advances currently . . . the health status and economy of patients.” I don’t think that’s true. I never said I was ever in software development. I was answering your statement that “current physicians by and large are neither that comfortable with the use of such technology or more likely simply do not want to devote any time to effective use.” I threw out the fact that I had been using computers since 1965 (all I remember about that first one was that it was exactly the size of a… Read more »

Wendell Murray
Guest

You miss the point completely.

Polemics for the sake of polemics do not advance anything practical (EMR system use) that unquestionably has defects, but that otherwise advances currently and materially advances prospectively the health status and economy of patients.

southern doc
Guest
southern doc

You’re really saying that patients are healthier now because of EMRs (and by healthier, I mean actually healthier, not that their doctors have achieved certain insignificant measures of quality)?

Legacy Flyer
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Legacy Flyer

Wendell,

I agree that the time wasted by patients is vastly greater than that wasted by Doctors, Nurses, etc. But I am NOT responsible for the time wasted by patients dealing with Hospitals, Insurance Companies and Medicare.

However, unless EMRs reduce the time wasted by patients (do they?) then your point seems to be – “don’t complain so much, others have it worse”. That is equivalent to saying to a patient that has had a minor heart attack – “don’t complain so much, my last patient died of cancer” – not likely to be all that compassionate or reassuring.

Legacy Flyer
Guest
Legacy Flyer

One more example of the time wasting caused by EMRs Yesterday, I received a notice of “delinquent unsigned orders” from St. Elsewhere and was told to correct this. ( I cover this hospital remotely. I have never written or given any verbal orders at this hospital, in fact I have never set foot in it.) Here is the reason why: “St. Elsewhere has discovered a large number of unsigned orders lingering in the background of the EMR dating back to it’s (sic) initiation. St. Elsewhere realizes many of these are errors in routing but still have to clean it up… Read more »

Wendell Murray
Guest

Useful example, but please keep in mind there are many similar examples of wasted time by patients dealing with insurance intermediaries and with service providers, aka physicians practices or hospitals, on any number of issues. As BobbyG notes, many of the “problems” associated with EMR systems relate to the poor overall healthcare system in the USA. mostly in regard to the financing and payment parts of that system.

They are absurd, byzantine, counterproductive, etc. for providers of services and consumers of services alike.

The example of a hassle for Mr. Legacy pales in comparison.

S Silverstein, MD
Guest

The elephant in the living room is that today’s health IT is largely “bad IT.” Good health IT (GHIT) is IT that provides a good user experience, enhances cognitive function, puts essential information as effortlessly as possible into the physician’s or other clinicians’s hands (or eyes) and facilitates better practice of medicine and better outcomes. Bad health IT (BHIT) is IT that is ill-suited to purpose, hard to use, unreliable, loses data or provides incorrect data, causes cognitive overload, slows rather than facilitates users, lacks appropriate alerts, creates the need for hypervigilance (i.e., towards avoiding IT-related mishaps) that increases stress,… Read more »

BobbyG
Guest

Thanks. I just downloaded, unzipped, and cited this study. Have just begun reading it.

Legacy Flyer
Guest
Legacy Flyer

Wendell, You say: “(1) too much vocal resistance from a small number of physicians for poor reasons to EMR system adoption” From what I understand, it is NOT a small number of physicians but a LARGE number. And from what I understand the primary objection has to do with how unwieldy the systems are and how they slow down the process of seeing patient – this is not a “poor” reason, but an entirely valid one. You say: “(2) an unwillingness, again regrettably on the part of physicians as opposed to others, to make some effort to intelligently consider available… Read more »

Wendell Murray
Guest

“But the Romans came grovelling to him.” I understand the concept, but keep in mind “Coriolanus” was a name granted to Gnaeus Marcius, a Roman general who sought a consulship, who overran the Volscian city Corioli, thereby “earning” the added name for that city. It was the Volsci who reportedly (the current sources for the story are Plutarch, writing much later, and a later Roman historian) later avenged the assault on their city by killing Gnaeus Marcius Coriolanus. I believe that his soldiers gave him up when surrendering to a Volscian army, but I would have to check that. In… Read more »

Wendell Murray
Guest

Mr. Legacy: There are many misconceptions out there regarding standards. There have long been standards for information exchange in healthcare aside from DICOM, all of which are integrated into most EMR systems. If your are interested in the technology of DICOM there are several good books that cover it. One outstanding book is by Oleg Pianykh who was and probably still is a specialist on DICOM at Harvard Medical School. Needless to say, there are many similar resources on other standards. The issue of computer applications that are written in a particular computer language, run under a particular operating system,… Read more »