This ConsumerGram looks at the costs and benefits of building a comprehensive nationwide electronic medical records system that would decrease deaths, reduce medical errors, improve health services, increase productivity and reduce healthcare costs. The problem is that there is little incentive for the medical industry to invest in such a system. This analysis investigates this stalemate and finds that government and employers’ actions could produce benefits that far outweigh costs, and thus benefit the payers of healthcare, consumers, employers and the government.
Electronic Medical Record System Can Stem Rising Healthcare Costs
From 1998 to 2007, the Consumer Price Index for all items increased by 27%, while medical care service prices increased by 50%, according to the Bureau of Labor Statistics. During the same period, hospital service prices increased nearly three times faster than the general rate of inflation – an astounding 75%. The reasons for the ongoing rise in healthcare costs are numerous, and include:
· The absence of price competition among doctors and hospitals;
· The increase in government expenditures on healthcare services;
· Consumer reliance on more comprehensive insurance for hospital services, physician services and prescription drugs;
· Technological advances which increases demand for services; and
· Changing American demographic factors, such as the aging of the population.
While these and other factors have contributed to a sharp increase in both the cost and price for medical services, there is evidence that developing a comprehensive electronic patient/medical record system could produce consumer benefits and significant cost reductions in the provision of healthcare. Developing an electronic medical records system would significantly increase quality and reduce health care expenditures, according to the following reports:
· The Institute of Medicine (2006) reports that medication errors alone would save 7,000 lives and reduce costs by $77 billion.
· WirelessWeek reports that hospitals could avoid $25 billion in transcribing doctor notes.
· The President’s Technology Agenda cites $300 billion that could be saved by avoiding unnecessary, inappropriate and ineffective treatments.
· Another report finds that $282 billion in cost savings and nearly 800,000 deaths per year can be avoided, by eliminating unnecessary medical intervention and errors (Null, et al).
This ConsumerGram explores whether the benefits of such a healthcare information system would exceed costs.
Industry Costs and Benefits
The HHS conservatively estimates that the industry could save $140 billion per year through the use of an electronic medical record system. According to USA Today the onetime cost of a fully computerized medical record system will be between $10,000 and $20,000 per doctor. Assuming even higher costs of $50,000 per doctor, approximately $50 billion would be required to cover the costs of converting the paper records to electronic form for the nearly 1 million medical personnel. In other words, benefits ($140 billion) far outpace the costs ($50 billion). Since the investment can spread over a five year period, net benefits (benefits minus costs) could be as high as one-half trillion dollars over the next five years in terms of net present value. These estimates do not include other benefits, such as decreases deaths and increased quality of life. Therefore, investments into a comprehensive electronic medical record system would yield significant net benefits to consumers.
If the net-benefits are so sizable, why does the industry not make these investments? Industry investment into patient records has been slow for two reasons. First, while the savings benefits consumers and payers of medical costs, the industry view these investments more as an added cost. In the absence of better information, hospitals still receive payment for unsuccessful treatments. However, if information provides a more successful alternative, then patients and payers benefit. As a result, the healthcare sector is slow to embrace investment into advanced information technologies, since the majority of benefits do not flow directly to the industry, instead flowing to the payers of medical services – the government, employers and consumers.
Second, there is an externality in that the full benefits of the investment require widespread adoption by the health and medical community. For instance, if only some hospitals adopt a comprehensive system for patient records, as is the case today, the full benefits of this investment would not be realized unless all doctors and hospitals also adopt the same healthcare information system. In fact, a comprehensive records system with uniform standards and widespread adoption by the medical community is necessary in maximizing the full benefits of healthcare information technologies.
Government and Employer Solution
Given that the government and employers are the dominant payers of healthcare expenditures, they have the greatest incentive to advocate electronic medical records. One option is that the government could take the lead role in speeding investment into what would be a clear net-benefit for consumers and the economy. Since the government accounts for about 27% of medical payments, its gain from the investment would be about 27% of the estimated benefits, or about $160 billion in benefits over the next 5-years. Assuming that the government incurs the full cost of the investment, about $50 billion and receives only its portion of benefit, the net-benefits (benefits exceeding costs) to government will reach $110 billion over the next five years. In other words, if the federal government incurs the full cost of a nationwide electronic patient records system, its share of benefits would still exceed total nationwide cost of a comprehensive health information system. However, a joint effort by the government and employers would quicken the deployment of these new technologies and reap the benefits sooner. Such actions could be fiscally sound and it would break the technology stalemate facing consumers and the healthcare community.
By first glance, the benefits of an electronic medical records system far outpace costs. This means that the government, employers and, most importantly, consumers would benefit from such a proactive policy. Given the fact that the industry has little incentive to accomplish this, it is time to let the government and employers step forward and break the stalemate.
Sources and Suggested Reading
· Matthew Grissinger and Kate Kelly, “Reducing the Risk of Medication Errors in Women,” Journal of Women’s Health, Vol. 14:1, Nov. 1, 2005. http://www.liebertonline.com/doi/pdf/10.1089/jwh.2005.14.61?cookieSet=1
· President’s Technology Plan at http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap3.html.
· Brad Smith, “Health Care Still Struggles with Mobility, WirelessWeek, Oct. 21, 2002, at www.wirelessweek.com/health-care-still-struggles-with.aspx
· Gary Null, Carolyn Dean, Martin Feldman and Debra Rasio and Dorothy Smith, “Death By Medicine,” Life Extension Magazine, March 2004 at http://www.lef.org/magazine/mag2004/mar2004_awsi_death_02.htm.
· Julie Schmit, “Health Care’s Paper Trail is Costly Route,” USA Today, July 19, 2004.
“HHS Fact Sheet – HIT Report At-a-Glance,” United States Department of Health and Human Services, Press Release, July 21, 2004, at http://www.hhs.gov/news/press/2004pres/20040721.html.