Obama's big idea for saving $100 billion
Experts say electronic health records will slash health care costs, but hospitals wonder when -- and how -- they'll be able to realize those savings.
NEW YORK (CNNMoney.com) -- The health care industry is poised to realize huge savings by implementing electronic health records systems, but who really benefits is up for debate.
Digitizing health records is a big part of the Obama administration's health reform agenda, with the president arguing that EHR will save taxpayers from wasteful spending by making health care more efficient.
The first $1.2 billion of $48.8 billion in health tech spending from the Recovery Act went out Thursday to help health care providers implement digital health systems. Starting next fall, $20 billion of Medicare and Medicaid incentives from the stimulus package will be doled out to providers that meaningfully use EHR.
But huge upfront costs and a questionable return on investment for hospitals have some screaming for broader reforms.
A recent Congressional Budget Office report said the health reform bills wouldn't sufficiently rein in costs nor would they trickle down savings to the average American with employee-sponsored insurance.
But a separate report from the CBO said the Recovery Act program would save the government more than $12 billion in Medicare and Medicaid costs over the next 10 years.
Though that doesn't sound like much, considering American consumers, businesses and governments spent approximately $2 trillion on health care last year, other studies show the savings are potentially ten times that amount for the entire health care industry.
Still, that's just part of the story. Making hospitals more efficient could actually hurt their bottom line. Insurance companies are willing to pay more for longer and more complicated patient treatments, so cutting down on costs may only be part of the solution.
How digital health saves costs. The first, most obvious cost saving comes from the time EHRs save just from turning them on.
Since patient information lives in a database, an electronic health record system means patients don't need to take the time to explain medical history to new doctors. EHRs help doctors diagnose faster, significantly cut down on the time it takes hospital staff to chart patients' information and ultimately slash the length of an average patient visit.
A recent study at the Christiana Care emergency room in Wilmington, Del., showed that just having the ability to download and print out a file with a patient's medical history saved the ER $545 per use, mostly on reduced waiting times.
With payroll generally serving as the single largest hospital expense, the creation of a digital system means hospitals can use their staff more efficiently.
"Doctors are paid by the minute, and they don't have a clue who the patients are," said David St. Clair, chief executive of health tech company MEDecision, which conducted the Christiana Care study. "Anything the system can tell them makes workflow easier and faster."
Beyond the ER, St. Clair estimated that EHR will result in total cost savings of $100 per patient per year. Sudhakar Ram, CEO of health IT firm Mastek, put that figure as high as $200 per patient per year. Mastek recently won a contract to create a central depository for health records for the UK's National Health Service.
Applied industry-wide, total savings could range up to $100 billion over the next 10 years, according to research group RAND.
Further out, as hospitals fully implement EHR and begin to cut back on duplications, misdoses and medical errors, cost reduction could total as much as $50 billion a year, said Ram.
Cost savings don't always mean more money. Those same cost reductions ultimately mean hospitals are getting less money.
The health-care system, as currently devised, allows savings for the health insurers, but not for those providing and receiving the care, said David Brailer, chairman of Health Evolution Partners and former health tech czar under President George W. Bush.
"We can influence care in a way that saves money, but we cannot tell you we'll have a robust return on investment," said Gail Donovan, chief operating officer for Continuum Health Partners, a New York network of 12 hospitals. Donovan said the network's 10-year cost for health information technology is $100 million.
Electronic health records cost tens of millions of dollars upfront for a typical hospital to implement. They also take years to set up and hours to train physicians.
"I'm still shocked that there is a business argument for electronic medical records because it kills the very thing that makes hospitals money," said Brailer. "The way we pay for health care penalizes efficiency."
Solutions: charge more. St. Clair argues that hospitals that can prove they are saving money and time -- and seeing more patients as a result -- will be able to convince the insurance industry to pay more for hospitals' services.
"If hospitals are able to demonstrate savings, they've got to charge more money to commercial insurers," said St. Clair. "The insurers would be happy to do that, because they're willing to improve the quality of care and don't want to screw over the hospital in the process. That's how hospitals will get more profits."
But Brailer said that's wishful thinking. He instead advocates for a "pay for performance" system, in which insurers pay hospitals a lot for a job well done and nothing for a bad job. That puts the burden on the hospitals to treat patients well and efficiently, rather than the current system in which hospitals can make more when patients stay sick.
"If we had that system, we wouldn't need a stimulus plan for EHR, because every hospital would already have one to improve their results," Brailer said. "Hospitals should be accountable for their results."