Can Information Technology Transform Health Care? The RAND Study of Potential Costs and Benefits of Electronic Medical Record Systems Roger S. Taylor MD, MPA RAND October 20, 2005

RANDs 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

Year Annual health expenditures (trillions) Official CMS projection of healthcare cost growth Cost Growth Projections for US Health Care

Year Annual health expenditures (trillions) Official CMS projection of healthcare cost growth 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

Year Annual health expenditures (trillions) Official CMS projection of healthcare cost growth What If EMR-S Transformed Health Care as IT 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 Savings of ~$77B/yr After 90% Adoption Outpatient $20.4B/yr Inpatient $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) Hospitals97.4 Physician offices17.2 Connectivity 6.0 Total$120.6B Costs

... Costs Are Modest Compared to Potential Efficiency Savings Total savings (15 years) Hospitals468.5 Physician offices159.0 Total$627.5B Efficiency Savings Total cost (15 years) Hospitals97.4 Physician offices17.2 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– –64 $0.9B Thousands of 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 Target population % Population not now compliant Cost/yr for 100% compliance Health benefits with 100% compliance Breast cancer screening Women 40 and older 30%$1.5B 50K cancers detected early, 4K fewer deaths/yr Colorectal cancer screening 50 and older 66%$4.0B 23.5K fewer deaths Influenza vaccination 65 and older 37%$0.2B 7.5K fewer deaths/yr Pneumococcal vaccination 65 and older 47%–$0.1B 21K fewer deaths/yr Prevention

Better Disease Management Can Reduce Acute Episodes Chronic Disease Management Note: This slide assumes 100% participation in management of emphysema, asthma, CHF, and diabetes. Study Assumptions: Studys savings projections based on compliance rates of 50% in prevention and 80% in disease mgt.

Net Result Is a Savings but Hospitals Lose Revenue Chronic Disease Management

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 Americas 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 course Continue implementing current policy directions Accelerate market forces Addresses key market failures through incentives to: –Adopt and use standard-based EMRs –Build a foundation for value-based competition 3. Subsidize change Add 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-