Can Information Technology Cut Healthcare Costs?

As U.S. President Barack Obama refocuses efforts on universal healthcare, the burdensome question of how to fund it all returns. But without a handle on the rising costs in the current healthcare system, the possibility for new coverage seems a pipedream. A recent report from the Board of Trustees of Social Security and Medicare indicates that the trust fund supporting the federal Medicare program will be insolvent in 2019—a full seven years sooner than previously projected.

Additional statistics indicate just how dire the healthcare cost situation is becoming. According to figures from the White House, “the U.S. spent approximately $2.2 trillion on healthcare in 2007, or $7,421 per person—nearly twice the average of other developed nations.” Statistics from the Congressional Budget Office estimate that by 2025, “one out of every four dollars in our national economy will be tied up in the health system.”

With U.S. healthcare expenses and health insurance premiums skyrocketing in response, the current administration and Congress are turning their efforts to tech implementation in the sector as a way to curb expense. President Obama’s $787 billion stimulus plan allots $19 billion for health information technology, in an effort to push common protocols in the space, including interoperable electronic health records that could easily move between clinicians, diagnostic facilities, hospitals, and pharmacies.

A Congressional Budget Office (CBO) cost estimate released in March 2009 detailed that the stimulus plan, officially known as the American Recovery and Reinvestment Act of 2009, provides funding for expanded use of health IT—an effort to “reduce on-budget direct spending for health benefits by Medicare, Medicaid, and Federal Employees Health Benefits (FEHB) programs by $12.4 billion” over the 2009-2019 period. While implementation of the health IT provisions in the stimulus plan would account for increases in the “on-budget deficits by a total of $18.3 billion over the 2009-2019 period,” according to the CBO, “it would increase the unified budget deficit over that period by an estimated $17 billion.” The CBO reports that the offset in spending increases will come from the reductions in Medicare spending in later years, resulting in a savings after 2014. The added benefit, says the CBO, is the accelerated use of cost-saving IT bleeding over into the private insurance sector, resulting in lower health insurance premiums for employers.

Too much of a good thing?

But is technology the saving grace that Congress and the current administration think it is? According to Rick Gilkey, executive director of the Center for Healthcare Leadership and a professor at the Emory University School of Medicine in the department of psychiatry and in the Goizueta Business School department of organization and management, there is a right and a wrong way to go about implementing technology initiatives in the healthcare space. First, he notes, medical practitioners need to delineate between “technology implementation on the clinical vs. the business side of the house.”

Doctors certainly haven’t been shy to employ cutting-edge technology when it aids diagnosis. But there are also drawbacks to the advances these kinds of technologies can provide, admits Gilkey. “Our Social Security and Medicare systems were generally based off of the German model, and financial projections were made given a much shorter lifespan of 65 years or so. Life expectancies are extending out, and while people are living longer, and that is a good thing if the quality of life is high, the extension of life and the additional healthcare costs associated with it are also a big driver of the expenses in the system.”

Gilkey notes that the overuse of medical diagnostic technology is playing a role in the burdensome costs of the system. Although he doesn’t fault the practitioners, he admits that the legal ramifications and the expectations of patients are making doctors extra careful to employ the latest and greatest technology available to diagnose a medical problem. “There needs to be a genuine discussion on how healthcare is used in this country,” he adds. “We need to have quality of life discussions, and we need to address tort reform on the medical malpractice side.”

The business side of the shop

But on the back office side of hospitals and medical practices, technology has been a godsend for harried nurses and secretaries. Paper was fast-becoming the enemy of the hospital office manager. Between patient records, insurance reimbursement requests, and x-ray images, the practitioner’s file cabinet was a growing storage and privacy menace. IT is easing the burden of imaging data retrieval, patient recordkeeping, and the insurance reimbursement process.

Gilkey admits that depending on the doctor’s office and the hospital’s size, the level of technology employed can certainly differ. “It’s a mixed deal,” he says, “as there can be huge inefficiencies that still need to be addressed.” Often, he notes, clinicians and nurses will need to repeatedly input the same computerized patient data into separate computer systems within one hospital’s separate divisions, insurance processing systems, or between affiliated doctor practices. “We need to learn to use technology better to run a leaner operation, giving access to laboratories, clinicians, specialists, and insurance companies—to access data to improve efficiency, costs, and quality all at the same time.”

According to Sunny Sanyal, chief operations officer for McKesson Technology Solutions (MTS), an Alpharetta, Georgia-based healthcare technology solutions provider, framing the tech debate may be half the battle. “When we talk about healthcare IT, we really need to talk about the improvements to care and access that technology will provide, and not just the cost-savings,” he notes. “Technology reduces waste. The goal should be a safer, better-connected and more efficient system.”

The main benefit of technological solutions will be freeing up clinicians to perform medical care vs. more time-consuming administrative tasks. “When nurses access patient records electronically to input data at patient bedside from wireless handhelds, it saves the steps it would take to walk back to the nurses’ station to transcribe that information from the paper chart. If you aggregate all of the hours saved, much of that time could be devoted to care or the savings could be passed on to Medicare or the insurance companies.”

Mistakes in medicine dosaging or other hospital foul-ups are also a costly and horrible problem for doctors and patients, and Sanyal says that cutting-edge technologies can help to prevent the inevitability of human error. “There are bar-coding technologies used for patients to identify their name, medical information, or allergies.”

Bumps in the road

But change is not always the doctor’s friend, says Goizueta’s Gilkey. “Doctors are always early adopters of technology on the clinical side, especially when there are less invasive ways of doing things.” But he admits that they are much slower to adopt IT changes on the business side, as physicians are often unwilling to devote time in their overworked day to anything they believe to be outside of their clinical role.

Sanyal does note that physician behavior and attitudes about technology can impede the IT effort. “The deployment process can help to resolve this one, since many of the current generation systems are much simpler to use than the ones that came before,” he adds. Many of the clinical systems are now web-based and easier to understand and use, making doctors and nurses much more likely to employ the new technology. Additionally, Sanyal says that medical schools are facilitating the change in clinician attitudes to IT. “Today, nursing students are readily using electronic systems to input patient information, and they much prefer not having to worry about the paper management.”

The cost hurdle may be a bigger one to solve. Sanyal argues that when presented with the actual cost-savings, the implementation of a new records-keeping system, for example, can be more enticing. He adds that the onus is on IT solutions providers to appropriately assess the initial cost outlay for the respective medical practice or facility. “You have to understand the needs of a large health system that might look to a $20 million transformation vs. a small clinic in need of a $500,000 system.” Systems can be designed for large repositories of information to be stored at the medical facility, or information can be accessed through a web portal and stored by the healthcare IT provider. Sanyal says that the technological solutions that can be offered to providers are many, including such things as better collections management, resulting in a significant and relatively quick cost savings.

Getting on the same page

Beyond the cost concerns, the healthcare IT sector must resolve the standards debate. For technology to take deep root in the healthcare sector and bring clinicians, specialists, hospitals, insurance companies and diagnostic centers together, IT specifications and protocols must use a common tech language. Certainly, much standardization has occurred as far as medical terminology, disease reporting, and diagnostic coding.

Sanyal points to the efforts made by the accredited standards developing organizations operating in the space and garnering the support of healthcare IT providers, including Health Level Seven (HL7), an Ann Arbor, Michigan-based organization developing standards for clinical and administrative data. But HL7 is not the only organization handling the issue. “It’s an evolutionary process,” admits Sanyal. The many healthcare IT companies, in addition to other healthcare stakeholders, represent the membership of the various standard bearing industry associations, such as the Healthcare Information and Management Systems Society (HIMSS), Integrating the Healthcare Enterprise (IHE), Electronic Health Record Vendors Association (EHRVA), and HL7.

The acceleration of the standardization movement could be in the works, with HIMSS, IHE, EHRVA, and HL7 coming together in 2005 to join forces and carve out territory within the space to work on protocols. Sanyal believes that the latest stimulus spending in the healthcare IT space could be the needed jumpstart to get consistent standards in place for medical records.

However, clinicians do still fear security breaches with electronic medical data, and this is something that the standard bearers and the IT providers must address, says Goizueta’s Gilkey. Americans are obviously very protective of their medical information, and rightfully so, he adds. Of course, the Health Insurance Portability and Accountability Act (HIPAA), enacted by Congress in 1996, mandates privacy protection of patient medical data, which all clinicians, hospitals, pharmacies, and insurers must follow. But Sanyal believes the IT industry is providing the needed encryption, firewalls, and privacy technologies to prevent hacking. Of course, the threat of security breaches will continue to be one of the biggest and evolving concerns for health care IT providers and medical practitioners.

The change needed

Goizueta’s Gilkey believes that whatever the concerns of clinicians may be, getting them to understand the benefits that tech can play in facilitating universal healthcare will be essential in getting their buy-in. “Technology can help to resolve some of the costs associated with the complexities of the system,” he says, “such as digitalizing medical records. There is a potential for economies of scale that a centralized system offers, and we could have the ability to look at best practices, as well.”

Even with the noted cost-savings and quality improvement incentives, selling clinics and smaller hospitals on the initial outlay for operational improvements will continue to be a tough one, says Steve Walton, associate professor in the practice of information systems and operations management at Goizueta. Not only will clinicians need to be sold on tech changes, those on the management side of hospitals and clinics—the people responsible for operating budgets—must also be the drivers of change.

Walton believes that the continuous trumpeting of the benefits of the “paperless office” has led many hospital officials to get a bit cynical about the use of IT. “There have been some technologies that have sizzled, and others that have fizzled out,” he says. For the right IT solutions to succeed, notes Walton, “we need to be honest about what works, and we need to move the debate away from technology being the only solution to the cost problem. We have to make sure that everyone understands that IT is a solution in a broad tapestry of changes needed in the healthcare system today.”