The Economics of Information Technology and Hospital Performance

Citation: Beard N., Elo K.Z., Hitt L.M., Housman M.G., & Mansfield J.G. The Economics of Information Technology and Hospital Performance, San Jose, CA: PricewaterhouseCoopers, Global Technology Center, 2007.

Abstract: Healthcare delivery organizations face a chorus of exhortations to invest in healthcare IT. Yet authoritative studies have concluded that the lack of a substantive business case for investment in clinical systems is a key factor in organizations’ resistance to invest. Our study 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 and we relied on econometric techniques derived from studies published in peer-reviewed, academic publications during the past 10 years. These methods are more capable of exploring claims that IT investment causes economic benefit. 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.