1. Can Information Technology Transform Health Care? Potential Health Benefits, Savings and Costs Richard Hillestad, Ph.D. Presented at The HIT Symposium, Massachusetts Institute of Technology, July 17-20, 2006

2. A6387b-2 Background A two year RAND Health study completed in Spring 05 Results appear in 2 articles in September 05 Health Affairs and 4 RAND reports Funded by the private sector -- Cerner Corp., General Electric, Hewlett-Packard, Johnson & Johnson, and Xerox 14 member steering group headed by Dr. David Lawrence, former CEO of Kaiser

3. A6387b-3 The Problem in Context U.S. health care is one of the largest and most inefficient information enterprises because it still operates mostly with paper records

4. A6387b-4 U.S. health care is one of the largest and most inefficient information enterprises because it still operates mostly with paper records The Problem in Context Despite health spending of $1.7 trillion nationally and projected to grow to over $4 trillion in 10 years, it doesn’t provide the best care –recommended care is provided only about 55% of the time –and, by a number of measures, health in the U.S. is worse than OECD averages

5. A6387b-5 U.S. health care is one of the largest and most inefficient information enterprises because it still operates mostly with paper records The Problem in Context Despite health spending of $1.7 trillion nationally and projected to grow to over $4 trillion in 10 years, it doesn’t provide the best care –recommended care is provided only about 55% of the time –and, by a number of measures, health in the U.S. is worse than OECD averages How much could Electronic Medical Record Systems (EMR-S) help?

6. A6387b-6 What Is an Electronic Medical Record System? EMR -- replaces the paper medical record EMR-S adds functions: –Clinical decision support –Patient tracking and reminders –Personal health records –Computerized physician order entry –Regional health information networks

7. A6387b-7 Key Findings Efficiency savings enabled by EMR-S could reach ~$80B/year at 90% adoption Costs to achieve that in 15 years average ~$8B/yr Safety benefits include avoiding 2.2 million adverse drug events Health benefits from prevention and management of chronic diseases alone could be 400,000 deaths avoided and 40M added workdays The market is not leading to this result because of important barriers and disincentives Therefore, there is a clear role for government action

8. A6387b-8 EMR-S Now in Only 20-25% of Hospitals and 10-15% of Physicians’ Offices 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 199019952000200520102015202020252030 Inpatient EMR-S Outpatient EMR-S Inpatient CPOE Fraction of hospitals or offices adopting

9. A6387b-9 Problem Is To Estimate Impact at Full Adoption 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 199019952000200520102015202020252030 Adoption period 15 yrs “Full” adoption Complex, networked technology Inpatient EMR-S Outpatient EMR-S Inpatient CPOE Fraction of hospitals or offices adopting

10. A6387b-10 The RAND Study of EMR-S RAND study developed computer simulation models to estimate potential benefits and costs, assuming –Widespread adoption (90%) –Interoperability (across providers) –Related health care process changes, for example: Restructured hospital and physician office workflow Increased preventative interventions Team care for chronic disease Extrapolates limited published evidence of EMR-S benefits

11. A6387b-11 Reduced waste, e.g., reduced duplication of tests Improved/changed processes, e.g., improved workflow and patient flow Fewer resources, e.g., reduced administration of paper records, better antibiotics usage Lower cost substitutions, e.g., generic drug utilization Efficiency Savings Enabled by EMR-S

12. A6387b-12 Efficiency Savings in the Inpatient and Outpatient Settings Outpatient $ 20B /yr Inpatient $60B/yr Length of stay Nursing administrative time Medical records administration Lab and radiology utilization Drug utilization Lab and radiology utilization Chart administration Efficient patient scheduling $80B/yr at 90% Adoption

13. A6387b-13 It Will Take Some Time to Realize Such Savings Savings/yr $B Fraction adopting Evidence and scaling uncertainty Adoption curve $80B/yr 20042006200820102012201420162018 1.0 0.8 0.6 0.4 0.2 80 60 40 20 0 0

14. A6387b-14 Costs include EMR-S software license, hardware and its maintenance As well as planning, training and implementation And reduced revenue or increased provider costs during implementation Costs of EMR-S

15. A6387b-15 We Estimated the Cost of Adoption over Time by Simulating Adoption with Current Costs Ambulatory EHR-S costs/yr Inpatient EHR-S costs/yr $B 2.0 1.5 1.0 0.5 Cumulative cost: $97.4B One-time cost: $30.4B Mean yearly cost: $6.5B Fraction adopting 20042006200820102012201420162018 1.0 0.8 0.6 0.4 0.2 0 $B 0 2 4 6 8 10 Cumulative cost: $17.2B One-time cost: $7.3B Mean yearly cost: $1.1B Fraction adopting 20042006200820102012201420162018 1.0 0.8 0.6 0.4 0.2 0 0

16. A6387b-16 Although EMR-S Implementation Costs Are Substantial... Total cost (15 years) Hospitals97 Physician offices17 Connectivity 6 Total$120B Costs

17. A6387b-17... Costs Are Modest Compared to Potential Savings, Even During Implementation Total savings (15 years) Hospitals470 Physician offices160 Total$630B Efficiency Savings Total cost (15 years) Hospitals97 Physician offices17 Connectivity 6 Total$120B Costs

18. A6387b-18 Safety Benefits of EMR-S Reduced errors from handwriting Allergy warnings Warnings of drug-drug interactions Dosage monitoring

19. A6387b-19 EMR-S with Computerized Physician Order Entry Can Increase Safety -- Medicare Share ~40% -- $3.1B 65+ 0–64 65+ 0–64 $0.9B Thousands of events

20. A6387b-20 Health Benefits Enabled by EMR-S Improved compliance with prevention activities Better management and prevention of chronic diseases Coordination of care across providers Patient involvement in care and healthy life style

21. A6387b-21 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

22. A6387b-22 Chronic Disease Management Is a High Leverage Application of EMR-S The chronically ill absorb about 75% of national health expenditure Chronic disease management requires –Community support and team care –Coordination and communication across providers –Patient monitoring and involvement Regional demonstration projects with EMR-S often focus on chronic disease management

23. A6387b-23 Target diagnoses Analysis Process for Disease Management ICD9 and CCC codes Clinical judgment MEPS Partition file MEPS subjects without target diagnoses MEPS subjects with target diagnoses Summarize by sex, age, eth., event type. Re-weight without file to match with pop. Disease pop - Utilization * - Expenditures * - Outcomes Control pop - Utilization - Expenditures - Outcomes * Differentiate between events associated vs. unassociated with a target diagnosis Disease management literature Clinical judgment % change in utilization by severity - IP stays - ED visits - Oth Amb - Rx use Select participation rates Calculate system-wide benefits & costs System-wide benefits & costs (includes utilization & cost of disease management program) -  Utilization -  Expenditure -  Outcome Activities & resources per patient by severity - MD hrs - RN hrs - Oth hrs

24. A6387b-24 Disease Management Attempts to Reduce Acute Episodes Upper Bound: Assumes 100% participation in management of emphysema, asthma, CHF, and diabetes.

25. A6387b-25 EMR-S Enabled Prevention and Disease Management Can Reduce Mortality and the Economic Impact of Chronic Illnesses Participation Rates Disease Management Lifestyle Change 80% 50% 20% Days Affected (millions) School days lost Work days lost Total days in bed -11 -39 -270 -7 -21 -160 Mortality (thousands of deaths)-400-250 Results for emphysema, asthma, CHF and diabetes

26. A6387b-26 Other IndustriesHealth Care Industry Champion FirmNo Integrated SystemDisaggregate System StandardsLow Implementation High IT InvestmentLow EMR-S Investment Market ForcesMarket Failure Consumer InvolvementNo Consumer Involvement Barriers to Adoption of EMR-S in Health Care

27. A6387b-27 The Most Significant Barrier: Physicians and Hospitals Do Not See Most Savings from EMR-S Investments EMR-S Purchasers Revenue and Savings From Chronic Disease Management

28. A6387b-28 The Government Should Intervene Now The market is not working well –Providers have little incentive or capability to institute standards-based, interconnected EMR systems –Current adoption process may lead to a 2-tiered health care system and inhibit future change The government is the largest employer and health care payer (and has considerable leverage on the industry) EMR-S enabled changes could moderate unsustainable health care cost growth and improve quality

29. A6387b-29 Key Government Actions Promote standards and EMR-S certification Implementation support Promote interoperability and regional connectivity Medicare leadership with incentives –Pay for use of EMR-S –Pay for quality measured by EMR-S

30. A6387b-30 Per Encounter Pay-for-Use Incentive With incentive Without incentive Value of incentive: $16.2 B Cost of incentive: $2 B Per-encounter payment: $1.5 Duration: 3 years Demand elasticity: -.5 Adoption period: 15 years Fraction adopting 1.0 0.8 0.6 0.4 0.2 0 20042006200820102012201420162018

31. A6387b-31 Can Information Technology Transform Health Care? Yes, but -- –not without much wider adoption –not without standards and interoperability –not without associated process and health care system changes –not without measurement of quality and efficiency And, probably not without government intervention

33. A6387b-33 Dissemination of These Findings Publications for multiple audiences –2 peer reviewed articles in Health Affairs –4 RAND monographs –RAND Research Brief and Congressional Newsletter Widespread media coverage with press releases by both Health Affairs and RAND Briefings for congressional and committee staff –Alliance for Health Reform (Frist-Rockefeller Group) briefing (300+ attendees, 60 Congressional) –RAND Congressional briefing cosponsored by 21st Century Health Care Caucus (Reps. Murphy and Kennedy), 26 attendees Meetings with key committee staff –Senate Finance Committee –Senate LHHS Appropriations Subcommittee –House Energy & Commerce Health Subcommittee –House Ways & Means Subcommittee –House LHHS Appropriations Subcommittee –House Armed Service Committee

34. A6387b-34 Dissemination (2) Meetings with Senators and staff –Senator Max Baucus (D-MT) –Senator Pat Roberts’ Staff (R-KS) –Senator Michael Enzi (R-WY) –Senator Orrin Hatch’s Staff (R-UT) Workshop on “Economic Impact of EHR Adoption Gap” with David Brailer, National Coordinator, Health Information Technology, HHS, at RAND, Santa Monica Briefings at private sector activities –Hewlett-Packard Worldwide Health Symposium, Las Vegas –Cerner Health Care Leadership Forum, Orlando –Xerox Health Care Forum, Rochester (in December) Briefings for other interest groups –Institute for Behavioral Health Informatics

35. A6387b-35 U.S. Health Expenditures Per Capita Are the Highest Among OECD Countries Source: OECD Health Data 2004, 1st Edition, Table 9 Note: The presented countries represent the range of expenditures for OECD countries. Due to space limitations, all OECD countries are not presented, however the average was calculated from 29 countries. Turkey’s data was not available. $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 United States Switzerland Norway Canada Germany France Australia Sweden Italy Average Japan United Kingdom Spain Hungary Korea Poland Mexico 2001 health expenditures per Capita (US$ PPP)

36. A6387b-36 U.S. Life Expectancy Is Slightly Below the OECD Average 60 65 70 75 80 85 90 Iceland Japan Sweden Canada Australia Italy United Kingdom Germany Spain France Finland Average United States Mexico Poland Hungary Turkey Years Males at birth (2001)Females at birth (2001) Source: OECD Health Data 2004, 1st Edition, Table 1 Note: The presented countries represent the range of life expectancies for OECD countries. Due to space limitations, all OECD countries are not presented, however the average was calculated from all OECD countries.