Can Information TechnologyTransform Health Care?

The RAND Study of Potential Costs and Benefits of Electronic Medical Record Systems

Roger S. Taylor MD, MPARAND

October 20, 2005

RAND’s Conclusions Regarding Electronic Medical Record Systems (EMR-S)

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

• Potential health and safety benefits also large and could more than double the savings (to ~$162B/yr)

• Government should act now to:– Accelerate market forces– Selectively subsidize change

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Annual healthexpenditures

(trillions)

Official CMS projectionof healthcare cost growth

Cost Growth Projections for US Health Care

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What If EMR-S Transformed Health Care as IT Did in the Retail Industry?

1.5% annual productivity improvement from IT (like retail industry)

Cumulative Savings of $5.2 Trillion over 15 Years

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2002 2004 2006 2008 2010 2012 2014 2016

Year

Annual healthexpenditures

(trillions)

Official CMS projectionof healthcare cost growth

What If EMR-S Transformed Health Care asIT Has Done in Telecoms?

1.5% annual productivity improvement from IT (like retail industry)

4% annual productivity improvement from IT (1/2 of telecom industry increase)

Cumulative Savings of $5.2–$12.2 Trillion over 15 Years

RAND Asked: How Much Value Could Widespread Use of EMR-S Deliver to US Healthcare System?

• Very limited published evidence of EMR-S benefits

• RAND developed models to estimate potential benefits, assuming:

– Widespread adoption of EMR-S (90%)– Effective connectivity

• Across providers• With patients

– Related EMR-S enabled changes, e.g.:• Team care for chronic disease management• Restructured processes and workflows• A focus on improving quality and efficiency

What Is an EMR-S?

• EMR -- replaces the paper medical record

• EMR-System (EMR-S) adds functions:– Clinical decision support– Patient tracking and reminders– Personal health records– Computerized physician order entry– Interface with knowledge banks and regional

information exchange networks

• EMR, in some form, now in only 20-25% of hospitals and10-15% of physicians’ offices

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

Data Suggest Potential Efficiency Savingsof ~$77B/yr After 90% Adoption

Outpatient$20.4B/yrInpatient

$57.1B/yr

Efficiency

• Length of stay• Nursing administrative time• Medical records administration

• Drug utilization• Lab and radiology utilization• Chart administration

• • •

• • •

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

Although EMR-S Costs Are Substantial . . .

Total cost (15 years)

Hospitals 97.4

Physician offices 17.2

Connectivity 6.0

Total $120.6B

Costs

. . . Costs Are Modest Compared to Potential Efficiency Savings

Total savings(15 years)

Hospitals 468.5

Physician offices 159.0

Total $627.5B

Efficiency Savings

Total cost (15 years)

Hospitals 97.4

Physician offices 17.2

Connectivity 6.0

Total $120.6B

Costs

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

• Potential health and safety benefits also large and could more than double the savings (to ~$162B/yr)

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

• Potential health and safety benefits also large and could more than double the savings (to ~$162B/yr) Safety benefits include:

• Fewer errors from illegible handwriting• Reduced adverse events from dosage,

drug-drug interaction, allergies

Significant Savings from Increased Safety -- Medicare Share ~40%

Safety

$3.1B

65+

0–6465+

65+

0–640–64

$0.9B

Thousandsof

events

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

• Potential health and safety benefits also large and could more than double the savings (to ~$162B/yr)

– Health benefits include:• Better delivery of preventive care, self-care• Better management of chronic diseases

EMR-S Can Promote Prevention with Guidelines, Reminders, and Outreach

Targetpopulation

% Populationnot now

compliant

Cost/yr for100%

compliance

Health benefitswith 100%

compliance

Breast cancerscreening

Women40 andolder

30% $1.5B

50K cancersdetected early,

4K fewer deaths/yr

Colorectalcancerscreening

50 andolder

66% $4.0B 23.5K fewer deaths

Influenzavaccination

65 andolder

37% $0.2B7.5K fewerdeaths/yr

Pneumococcalvaccination

65 andolder

47% –$0.1B21K fewerdeaths/yr

Prevention

Better Disease Management CanReduce Acute Episodes

Chronic Disease Management

Reduced ER visits and hospital stays

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Inpatient stays ER visits

% reduction

Note:This slide assumes 100% participationin management ofemphysema, asthma, CHF, and diabetes.

Study Assumptions:Study’s savings projections based on compliance rates of 50% in prevention and 80% in disease mgt.

Net Result Is a Savingsbut Hospitals Lose Revenue

Chronic Disease Management

Revenue and Savings

-40

-30

-20

-10

0

10

20

30

40

Total savingsPhysicianrevenue Drug costs

Hospitalrevenue

$B

Major Conclusions

• At 90% adoption, potential EMR-S enabled efficiency savings are high (~$77B/yr)

• Costs are modest relative to savings (~$10B/yr)

• Potential health and safety benefits also large and could more than double the savings (to ~$162B/yr)

• Government should act now

Why Should the Government Intervene?

• EMR-S enabled changes could moderate unsustainable health care cost inflation and improve quality

Why Should the Government Intervene?• EMR-S enabled changes could moderate unsustainable

health care cost inflation and improve quality

• The market is not working well – Providers have little incentive or capability to:

• Institute standards-based EMR Systems• Exchange electronic patient information• Restructure to optimize quality or efficiency

– Current adoption process may lead to:• 2-tiered health care system • Islands of isolated adopters resistant to change• $ Billions invested without much societal benefit

Why Should the Government Intervene?

• EMR-S enabled changes could moderate unsustainable health care cost inflation and improve quality

• The market is not working well

• The government is America’s largest health care payer and biggest employer, with:

– Direct interest in quality and efficiency– Market clout to change provider behavior– Strong influence on other payors’ policies

What Should the Government Do?

• Stay the courseContinue implementing current policy directions

• Accelerate market forcesAddresses key market failures through incentives to:– Adopt and use standard-based EMRs – Build a foundation for value-based competition

3. Subsidize changeAdd targeted subsidies to develop: – Regional health information exchange networks – Initiatives to decrease the risk of HIT adoption and networking– Monitoring system to assess adoption patterns and needs

Stay The Course-Any combination of policies that reduce the risks or effective

cost of adoption speeds change-

Accelerate Market Forces-A modest per-encounter incentive would accelerate standard-

based EMR adoption in physicians’ offices-

Subsidize Change-If needed, targeted subsides would speed hospital adoption-