Research News

Paying to Increase Use of Electronic Medical Records

IPR associate David Dranove asks if it really takes $27 billion to encourage their adoption

HITECH spurred EMR adoption in hospitals, but at what cost?

Policy analysts have suggested that widespread adoption of electronic medical records (EMR) in hospitals could increase efficiency and decrease expenditures in the U.S. healthcare system. For many years, however, EMR use was confined to large healthcare systems for many reasons, including high implementation costs.

In 2009, Congress passed the Health Information Technology for Economic and Clinical Health Act (HITECH), which provides $27 billion in incentive payments to hospitals adopting EMR. In a recent working paper, healthcare economist and IPR associate David Dranove, with Northwestern’s Craig Garthwaite and Christopher Ody and Cornerstone Research’s Bingyang Li, measures HITECH’s effectiveness in spurring EMR adoption.

The researchers compiled data from several sources, including the Healthcare Information and Management Systems Society Analytics Dataset, which contains information on more than 5,300 healthcare providers and EMR implementation. Using annual hospital cost reports, they also calculated the incentives each hospital would expect to receive under HITECH and estimated the effects of these incentives on EMR adoptions.

Dranove and his colleagues found that EMR adoption rates markedly increased after HITECH’s passage, growing from 48 percent in 2008 to 77 percent in 2011. Without HITECH, the researchers estimate that the EMR adoption rate would have only reached 67 percent by 2011.

The researchers, however, also indicate that EMR adoption was an ongoing trend before HITECH’s passage, and thus, would likely have continued to grow without congressional intervention. They determine that 77 percent of hospitals in the survey would have adopted EMR anyway by 2013—only two years after hospitals reached this rate under HITECH—and without spending a cent of HITECH’s $27 billion fund.

Moreover, Dranove and his colleagues note that a significant portion of the funding was given to early EMR adopters, or those who would have likely adopted EMR anyway. The law was therefore substantially more expensive than it would have been if incentive money were only available for “marginal adopters,” or those hospitals that would not have adopted EMR without HITECH’s incentives.

“When you look at payments to the 10 percent that adopted because of HITECH, it looks like money well spent, but once you factor in the payments to the many early adopters, HITECH ends up being relatively cost inefficient,” Ody explained.

On the other hand, Ody noted, reducing incentives for early adopters could encourage those hospitals to delay adopting new technologies, for the sole purpose of receiving government money at a later date.

As a result, “policymakers who want to provide incentives are stuck between a rock and a hard place” when it comes to designing those incentives, Ody said. “If hospitals are adopting without subsidies, then it is not clear why we need subsidies in the first place.”

David Dranove is the Walter J. McNerney Professor of Health Industry Management at the Kellogg School of Management, Northwestern University, and an IPR associate. Craig Garthwaite is an assistant professor of strategy at Kellogg. Christopher Ody is a research assistant professor of strategy at Kellogg. Bingyang Li is an associate at Cornerstone Research in San Francisco, California.

The working paper, “Investment Subsidies and the Adoption of Electronic Medical Records in Hospitals” (WP-14-12) is available on IPR’s website.