Groundbreaking study shows hospital investment in IT does reduce costs
3 April 2007 New York, USA. A two-year long study of the use of
information technology in 2000 US hospitals has found that the investment
does pay for itself, given time. A new report by PricewaterhouseCoopers on
the relationship between health IT investment and hospital operating
performance shows that more than 60 percent of hospitals in the U.S. have
made significant enough investments in information technology to begin
seeing reductions in operating costs. The report, the culmination of
two-years of research, provides the most comprehensive evidence that
investment in information technology will improve hospital business
performance and that IT capital investment can eventually pay for itself in
the healthcare environment.
Entitled "The Economics of IT and Hospital Performance," the report includes
analysis of performance data from nearly 2,000 US hospitals. The study was
conducted by PricewaterhouseCoopers and Professor Lorin Hitt of the
University of Pennsylvania, Wharton School of Business.
The researchers concluded that return on investment for health IT is a
long-term promise that comes with caveats. IT investment must reach a
tipping point before cost-reducing performance improvements occur, and until
then hospitals experience increased operating costs with little near-term
financial benefit. With six in ten hospitals in the US at or nearing the
tipping point, industry-wide costs, operational and quality improvements
associated with IT investment may begin to be more widely apparent. However,
PwC also found that hospitals are experiencing less dramatic return on IT
investments than other industries that have realized productivity gains
equal to five times the cost of IT investment. Moreover, some hospitals may
not experience productivity increases at all, if they are starting from a
low point of IT investment, according to PwC. "Healthcare is typically
described as lagging other industries in IT investments whereas the real
culprit might be that hospitals have failed to take full advantage of IT by
making more significant clinical and operational process changes," said
David Levy, M.D., principal, PricewaterhouseCoopers LLP and Health
Information Technology practice leader. "The business case for increased IT
spending has been a foregone conclusion but it is based largely on untested
claims and the experience of other industries. The lack of reliable,
industry-specific empirical evidence has left hospital executives wondering
whether IT investments will ever really pay off and unclear about the extent
to which a transformation will occur. We can now retire this question and
definitively say, 'Invest in IT; it works, but have patience." There have
been considerable efforts in the past to study healthcare IT benefits at the
macroeconomic level, but research has been hampered by the complexity of
healthcare and difficulty disentangling varying factors such as case mix,
bed size, for-profit versus not-for-profit status, disproportionate share
status, etc., which effect individual hospital performance. PwC created a
sophisticated economic model that accounts for 90%of these variances and
interrelated key factors such as IT investments and labour costs, capital
infrastructure cost, material costs and other inputs and outputs. In
addition, PwC created a proprietary IT Capital Index scale to determine each
hospital's healthcare IT application mix and the capital value of those
applications.
Highlights
- Overall, hospitals making high levels of IT investments perform at a
higher level of efficiency than hospitals with low levels of IT
investments; however, hospitals with the lowest levels of investment in
IT have lower overall operating costs than hospitals with moderate
levels of IT investment.
- Hospitals that are low on the IT Capital Index scale experience
increases in total operating expenses as they bring more IT online and
until they reach a threshold. Though these greater costs can be
explained, hospitals in this situation face a daunting challenge if they
must justify IT investments to stakeholders on the basis of near-term
payback.
- As hospitals move up the IT Capital Index scale, they showed costs
eventually leveled off, which occurs regardless of the added costs of
additional IT capital. This suggests that IT capital at some point pays
for itself by displacing costs elsewhere in the organization such as
improved quality.
- As hospitals move into "high adopter" categories, there is strong
evidence IT investments lead to cost-reduction as the organization gains
skills in leveraging the technology. To fully realize the value from IT
investments, organizations must also redesign clinical and business
processes.
Relationship between IT capital, cost and quality
While PwC's analysis focused primarily on cost efficiency, the model
used to analyze business performance metrics also was applied to quality
metrics by focusing on a single outcome: hospital mortality rates
adjusted for risk, case mix and state averages. The analysis revealed a
statistically relevant correlation between hospital IT investment and
mortality rates. Significant differences were found between hospitals at
the low end versus the high end of PwC's IT Capital Index, and suggest
that hospitals investing in IT can reduce mortality rates without a
corresponding increase in operating costs.
"The importance of this finding is that if hospitals can demonstrate
an ability to improve quality without increasing costs per bed, it may
be more- than-sufficient justification for making IT investments," said
Nick Beard MD, director, PricewaterhouseCoopers, LLP and principal
author of the paper. "By using the economic model and IT Capital Index,
PwC can gain an even deeper understanding of the relationship between IT
and quality of care using other more relevant measures of clinical
quality and to eventually look at hospital specific issues."
A summary of "The Economics of IT & Hospital Performance" and
additional information about methodology can be found at
http://www.pwc.com/healthcareIT
To top
|
|