Does technology pay?
Higher profits reported at IT-proficient hospitals
Profits grew faster for hospitals and health systems with sophisticated information technology than for those recognized for quality but lacking in IT, a major credit ratings agency reported last week.
Fitch Ratings said profit gains for 291 notfor-profit hospitals and health systems in its portfolio were highest among those with both highly developed technology systems and quality distinctions.
They were closely followed by those with sophisticated technology but no quality awards. But hospitals that lagged on technology also trailed in profit gains, regardless of quality awards.
The report raises questions about the relationship between technology, quality and financial performance, a relationship under increasing scrutiny as pressure grows to curb U.S. healthcare spending.
Jim LeBuhn, senior director of not-for- profit healthcare at Fitch Ratings, said it is difficult to determine cause and effect from the analysis. Hospitals with the financial strength to pour capital into IT may also have higher profits, he said, though findings suggest IT helped accelerate gains.
Annual revenue growth exceeded growth in costs by 1.8% for a dozen hospitals with technology and quality recognition. Analysts reviewed performance between 2005 and 2009.
At the 24 hospitals recognized as Health Information and Management Systems Society stages 6 or 7 (8% of the sample), yearly revenue growth surpassed the rise in costs by 1.3%. Unrestricted cash and investments was 30% higher for hospitals considered high quality or high technology than for the overall portfolio, the report said.
Meanwhile, performance among the overall portfolio was largely similar to the 75 hospitals with only quality awards, with growth in revenues exceeding growth expenses by 0.2% and 0.3% a year respectively. Recognition from HealthGrades, the Leapfrog Group and the Malcolm Baldrige National Quality Award were considered in the analysis.
LeBuhn said the agency undertook the analysis looking for an indication that a largely unproven rational behind IT capital spending—that technology pays, eventually—could be right.
In Carson City, Nev., the 172-bed Carson Tahoe Regional Healthcare is three years into its five-year plan to adopt electronic health records. Ed Epperson, president and CEO, said the investment of “many millions” was made on faith that information technology would help eliminate waste and improve care, but without much evidence to support that conviction.
“I believe it will,” said Epperson, who flew to New York last week to attend a two-day not-for-profit healthcare investor conference (see story, p. 14). “But it’s an investment you’re making without a real clear” return on investment. The public, Epperson said, underestimates the investment required for hospitals and doctors, which happens “painfully, expensively, over a lot of years.”