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Widespread Adoption Of Health Information Technology Could Save $162 Billion A Year, Says RAND Study,
But The Federal Government Needs To Help

Study Estimates Up To 2.2 Million Adverse Drug Events Could Be Prevented Annually

Bethesda, MD – Widespread adoption and effective use of electronic medical record systems (EMRs) and other health information technology (HIT) improvements could save the U.S. health system as much as $162 billion annually by greatly improving the way medical care is managed, greatly reducing preventable medical errors, lowering death rates from chronic disease, and reducing employee sick days, says a pair of new RAND Corporation studies released today in the journal Health Affairs.

The studies are the first of their kind to project both the savings and health benefits that could result from nationwide adoption of HIT. Because there is limited direct evidence of the benefits at this early stage of adoption, the RAND team used computer models to show the potential benefits if EMR systems were adopted widely, interconnected, and used effectively.

“The potential savings from HIT is mind-boggling, but it isn’t going to happen overnight,” says lead author Richard Hillestad, senior management scientist for the Santa Monica–based RAND, which has a team devoted to studying the role of HIT in health care. “The federal government will need to step in to speed the diffusion of HIT and remove some major barriers if we are going to reap the tremendous benefits it could have on improving quality, managing diseases, and extending people’s lives,” he says.

Barriers to wider adoption of HIT include the following:

• High initial acquisition and implementation costs
• Slow and uncertain financial payoffs for health care providers
• Disruptive effects on physician practices during implementation
• Payment systems that result in most HIT-enabled savings going to insurers and patients, while most adoption and care improvement costs are borne by providers

To accelerate HIT adoption, Hillestad and the RAND team say that the government will need to act more aggressively in the early stages of adoption to ensure widespread use of

• EMR systems that conform to a national set of standards
• Information-exchange networks sharing approved data among providers and patients
• Programs to measure, report and reward the provision of high-quality, efficient care

RAND’s projections of the value of widespread adoption of EMRs and other HIT improvements come amid a frenzy of activity at the federal level. President Bush has made adoption of EMRs a major domestic initiative designed to assure that nearly every American has an EMR within 10 years, and the Department of Health and Human Services is funding numerous HIT-related projects.

RAND’s findings reinforce the value of staying the course with these and other current federal, state, and private initiatives to promote HIT, says Hillestad. But RAND suggests that the federal government and employer groups also consider adopting a package of policy initiatives designed to accelerate market forces and subsidize change, including laying the foundation for performance-based competition, payment differentials to providers who adopt standards-based EMR systems, and targeted subsidies to help communities create regional information exchange networks. A program to measure and monitor HIT benefits during the rollout should be used supplement the currently weak empirical base and to provide course corrections to government policy during the adoption process.

Curbing Medical Errors and Improving Patient Safety

RAND’s study projects what could happen if EMR systems were adopted widely, interconnected, and used effectively. Under that scenario, the potential safety and cost benefits of standardized EMRs are sizable, according to RAND. For example, one-third to one-half of the eight million adverse drug events (ADEs) per year in ambulatory settings (e.g. doctors’ offices, outpatient clinics) could be prevented. Each avoided ADE saves $1,000 to $2,000 in unnecessary health care costs while improving the quality of patient care, says RAND.

The research team estimates that computerized physician order entry (CPOE) systems, a component of an EMR that can warn physicians about possible drug interactions or suggest alternative courses of action, could eliminate two million ADEs in the ambulatory setting and 200,000 ADEs in the hospital setting. This could save up to $3.5 billion a year in the ambulatory setting and $1 billion a year in hospitals. Medicare would benefit greatly since avoiding ADEs in patients 65 and older account for 60 percent of the hospital savings and 40 percent of the ambulatory savings; about 37 percent of the potential ambulatory savings and error avoidance would come from solo practices, says RAND.

Managing Chronic Diseases

EMRs also can be instrumental in managing high-cost chronic diseases such as asthma, congestive heart failure, chronic obstructive pulmonary disease, and diabetes. RAND says that these programs can generate “savings of several tens of billions of dollars per year” in reduced hospitalizations and emergency room visits by bolstering communication, coordination, measurement, and decision support. Reducing the incidence of chronic disease and hospital visits due to long-term prevention and management could save as much as $147 billion per year. But realizing the benefits of prevention and disease management requires that a substantial portion of providers and consumers participate, says RAND.

Widespread use of HIT also will lead to more short-term preventive care, enabling providers to offer important screening exams or immunizations in a routine manner and remind patients to schedule medical care when they need it. RAND says that the costs of these kinds of measures “are not large compared to the benefits,” projecting, for example, that 13,000 life years would be gained from more routine cervical cancer screening for a cost of $100–$400 million a year.

Removing Barriers

Despite the promise of EMRs and other HIT improvements, the U.S. still has far to go. Most medical records are still stored on paper, and consumers still lack the information they need about costs or quality to make informed decisions about care. The U.S. lags many other countries in its use of standardized EMRs. Only 15–20 percent of U.S. physician offices and 20–25 percent of hospitals have adopted some version of an EMR system, and the majority of these systems can’t effectively interconnect through networks to coordinate care with other health care providers.

RAND estimates that the average yearly cost over a fifteen-year adoption period to get the hospitals and doctors who don’t have an EMR system on board would be about $7.6 billion, much less than the $162 billion per year in possible savings. More specifically, the cost for hospitals to adopt a standardized EMR system would be $98 billion over a fifteen-year adoption period, or $6.5 billion per year, assuming that 20 percent of hospitals now have an EMR. Physician adoption adds $17.2 billion over this adoption period, for an average yearly cost of $1.1 billion, assuming that 90 percent of physicians buy in.

RAND says that moving the U.S. health care system quickly to broad adoption of standards-based EMRs could dramatically reduce national health care spending at costs far below the savings, but the federal government has to help create a pathway.

RAND’s review of the impact of information technology in other industries suggests that the savings could even be larger. “If health care in the U.S. was transformed sufficiently to generate the 1.5 percent annual productivity gains from information technology–enabled efficiencies in the retail and wholesale industries, the annual cost of health care could be reduced by $346 billion or more. But the dramatic transformations and productivity gains seen in other industries resulted from both large investments in information technology and other factors such as deregulation, value-based competition, and system integration,” says RAND, adding that “almost none of these factors are at work in health care.”

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies of the September/October 2005 issue will be provided free to interested members of the press. Address inquiries to Jon Gardner at Health Affairs at 301-347-3930 or via e-mail, press@healthaffairs.org. Selected articles from the issue are available free on the journal’s Web site, www.healthaffairs.org.

Print copies of the issue are available to the public for $35 each at http://www.healthaffairs.org/1330_issue.php.

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©2005 Project HOPE–The People-to-People Health Foundation, Inc.