Regulatory Reform

Electronic Health Records and the Cost of Health Care: What Happened?

The prestigious RAND Corporation predicted in 2005 that widespread use of electronic records could save the United States health care system more than $81 billion a year. The White House used RAND’s optimistic report to help make the case for a $838 billion stimulus bill, which included money to help hospitals transition to electronic records systems. At the time, the Wall Street Journal dubbed the RAND Corporation study and subsequent White House proposal an “elegant exercise in wishful thinking.”.

It now appears the Wall Street Journal was correct. According to a recent follow-up report by RAND Corporation, expected savings have not been realized, leaving academics wondering how the potential for savings as a result of switching to electronic health care records was dramatically overestimated. Perhaps because an impactful piece of the equation—poorly planned incentives—was left out of the initial analysis.

In this report, released last month in the academic journal Health Affairs, RAND concedes that its 2005 report overstated actual cost reduction from incorporating electronic records into the health care system. The prediction was bold, but not unthinkable: the anticipated $81 million in savings represented a less than 1 percent cut to health-care spending. So, how did the highly-respected RAND Corporation get it wrong?

RAND’s initial study correctly identified the capacity for benefits and savings as a result of electronic records. What the study failed to foresee was how poor incentives coupled with damaging restrictions on how information could be used might impact overall savings. In fact, Dr. Arthur L. Kellerman, an author of the most recent RAND Corporation report, believes that the quality and savings benefits are still “unquestionably there for the taking.”

According to Dr. Brailer, a former United States public health official, blame for the failure of electronic health care records to save money thus far lies with the incentives. Dr. Brailer describes the  U.S. Department of Health and Human Servicesincentive program, which doled out funds for hospitals willing to adopt electronic health record procedures, as a “colossal strategic error.” Ultimately, Brailer explains, the “vast sum of stimulus money flowing into health information technology created a ‘race to adopt’ mentality—buy the systems today to get government handouts, but figure out how to make them work tomorrow.” This is true for states like Connecticut where the National Governors Association found financial incentives to be primarily state stimulus dollars and Medicaid grants with very little private funding.

The 2012 RAND study authors’ analysis corroborates Brailer’s theory, finding that promises of health information technology remain as-yet-unfulfilled in part because health care providers and institutions failed to “reengineer care processes to reap the full benefits of health IT.” If health care providers are adopting new technologies to receive stimulus funds—not to improve productivity and health care quality, then health professionals have less incentive to rework their systems in order to improve compatibility with and adapt to new technologies.

Another obstacle to improved health care is the regulatory framework surrounding health information technology. For example, each transfer of personal health information for treatment or payment purposes requires the patient’s consent. While electronic health records should facilitate smooth health information exchanges, the rules pertaining to how consent is obtained are complex; differences in federal and state consent laws add to the challenge of regular electronic health information exchange. Patients should control their medical information, but the current means for obtaining consent remain difficult for both the patient and provider.

Today’s technology is not perfect. Interoperability remains an issue and some health professionals have reported the technology as cumbersome, questioning why they were compelled to adopt a less efficient system. But, experts are hopeful that—as with all technology—innovation will eventually lead to an intuitive, interoperable system. Let’s just hope we have the right incentives and regulatory framework in place to capitalize on the prospective high quality, low cost health care as a result of technological advancements.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth