White Papers

White Papers March 2013
An econometric analysis of costs and quality

Information technology and hospital performance

Healthcare delivery organizations face a chorus of exhortations to invest in  healthcare IT. Advocates include President Bush, industry groups, technology  vendors, and others. Various claims usually characterize the need for investment as urgent, the time as ripe, and the paybacks as substantial. Yet skepticism remains, at least partially because strong evidence of benefits—let alone a  return on investment—is difficult to find. Two authoritative studies have concluded that the lack of a substantive business case for investment in clinical systems was a key factor in organizations’ resistance to invest.

PricewaterhouseCoopers and researchers at the Wharton School of the  University of Pennsylvania collaborated on a study to investigate healthcare IT  investment. We had two objectives: first, to assess the relationships between IT  investment and other measures of hospital performance by using advanced statistical and econometric techniques; and second, to establish whether such  relationships support the assertion that investment in IT by US hospitals actually enhances organizational performance.

The study used data from a sample of almost 2,000 US hospitals. To reach our  results, we relied on techniques derived from studies published in peerreviewed, academic publications during the past 10 years. These methods are more capable of exploring claims that IT investment causes economic benefit. 

Simple correlation studies or single-institution case studies are subject to criticisms that reduce the validity of causal inferences. Our multiyear data panel also allowed us to explicitly test for the effects of IT investment that take a year or more to appear in hospital performance data, an outcome that other studies have found in healthcare and other industries.

Our study reveals an important and statistically significant relationship between IT capital investment and hospital cost efficiency. At levels of IT that most hospitals can aspire to reasonably quickly, our study shows evidence of real cost reductions. At lower levels of IT capital investment, however, additional IT investment seems to be associated with increased hospital operating expenses. 

In hospitals that have reached a threshold level, increases in IT capital investment are associated with lower hospital operating costs. For-profit hospitals generally appear to gain larger cost reductions from their investments, and they gain these benefits at lower levels of IT investment. Another noteworthy result indicates that mortality rates adjusted for risk and case mix are also affected by IT investment; hospitals that invest more in IT demonstrate lower mortality rates. Although mortality is not an ideal proxy measure for quality of care, it can highlight areas worthy of additional exploration.

Hospitals should consider the applicability of these findings to their own investment strategies, and they should recognize that depending on where they are on the scale of IT investment, the benefits may take significant time and effort to realize. Healthcare IT vendors may need to adjust their sales messages to better take into account the starting point for hospitals contemplating acquisition of IT products, and vendors may need to invest more aggressively to ensure that appropriate process redesign is a part of their implementation programs. Policymakers should take note of this powerful new evidence that IT investment has demonstrable effects, but be aware that some hospitals may have a long way to go for those effects to represent a return on investment.


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