Health and Human Services' Estimate of Health Care Cost Savings Resulting from the Use of Information Technology
Gao ID: GAO-05-309R February 17, 2005According to the Institute of Medicine and others, the U.S. health care delivery system is an information-intensive industry that is complex, inefficient, and highly fragmented, with estimated spending of $1.7 trillion in 2003. The Institute of Medicine has called for transformational change in the health care industry through the use of health information technology (IT) to improve the efficiency and quality of medical care. As a regulator, purchaser, health care provider, and sponsor of research, the Department of Health and Human Services (HHS) has also been working over the years to promote the use of IT in public and private health care settings. We are currently working to provide Congress with an overview of HHS's efforts to develop a national health IT strategy, identify lessons learned from the Departments of Veterans Affairs and Defense regarding their use of electronic health records (EHR), and identify lessons learned from international efforts to modernize national health IT infrastructures. As part of this ongoing work, Congress asked us to review how a recent HHS estimate of cost savings from the adoption of IT was derived and what portion of these savings are projected for the federal government.
According to the National Coordinator for Health IT, HHS's initial estimate of potential nationwide savings resulting from the adoption of health IT is based primarily on two studies conducted by the Center for Information Technology Leadership (CITL). One of the CITL studies identified $78 billion in annual savings, while the other study estimated $44 billion from the widespread implementation of IT used in ambulatory care settings. Both studies estimated savings based on the use of models to project the value of net cost savings from the adoption of IT and incorporated information from published studies, expert panels, and market research. However, CITL and other health care experts acknowledge that these estimates are based on a number of assumptions and inhibited by limited data and therefore are not necessarily complete and precise. Although HHS had originally given us estimated annual federal savings of $30 billion associated with the Medicare program, in its comments HHS stated that it is unable to reliably quantify savings. HHS also stated that it is actively working to determine what the savings will be and expects them to be substantial. Although the available data make estimating cost savings difficult, according to HHS Medicare would likely save a proportionate amount from reduced utilization of services for Medicare-funded office visits (because the program uses volume-based payments for ambulatory and inpatient care) and from reduced use of medications given inappropriately or unnecessarily.
GAO-05-309R, Health and Human Services' Estimate of Health Care Cost Savings Resulting from the Use of Information Technology
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February 16, 2005:
The Honorable Jim Nussle:
Chairman:
Committee on the Budget:
House of Representatives:
Subject: Health and Human Services' Estimate of Health Care Cost
Savings Resulting from the Use of Information Technology:
Dear Mr. Chairman:
According to the Institute of Medicine and others, the U.S. health care
delivery system is an information-intensive industry that is complex,
inefficient, and highly fragmented, with estimated spending of $1.7
trillion in 2003. The Institute of Medicine has called for
transformational change in the health care industry through the use of
health information technology (IT) to improve the efficiency and
quality of medical care. As a regulator, purchaser, health care
provider, and sponsor of research, the Department of Health and Human
Services (HHS) has also been working over the years to promote the use
of IT in public and private health care settings.
As you requested, we are currently working to provide you with an
overview of HHS's efforts to develop a national health IT strategy,
identify lessons learned from the Departments of Veterans Affairs and
Defense regarding their use of electronic health records
(EHR),[Footnote 1] and identify lessons learned from international
efforts to modernize national health IT infrastructures. As part of
this ongoing work, you asked us to review how a recent HHS estimate of
cost savings from the adoption of IT was derived and what portion of
these savings are projected for the federal government. To develop this
correspondence, we reviewed supporting documentation, interviewed HHS
officials on potential cost estimates, and reviewed the methodology
used to develop projected cost savings and other benefits. We performed
our work in January 2005, in accordance with generally accepted
government auditing standards.
In brief, IT can improve the efficiency and quality of medical care and
result in costs savings. Although estimated nationwide savings are
primarily based on studies with methodological limitations and are
contingent on much higher IT adoption rates than are currently
estimated, the potential for substantial savings is promising.
Background:
In October 2003, we reported on cost savings achieved by health care
delivery organizations and insurers resulting from the use of IT,
including reduction of costs associated with medication errors,
communication and documentation of clinical care and test results,
staffing and paper storage, and processing of information.[Footnote 2]
IT also contributed to other reported benefits, such as shorter
hospital stays, faster communication of test results, improved
management of chronic disease, more accurate and complete medical
documentation, improved accuracy in capturing charges associated with
diagnostic and procedure codes, and improved communications among
providers that enabled them to respond more quickly to patients' needs.
Over the past year, federal efforts to encourage the use of health IT
have accelerated. As we reported in August 2004, HHS has a number of
major health IT initiatives throughout the department that cover a
broad range of activities and participants.[Footnote 3] For example, in
April 2004, President Bush established a goal that health records for
most Americans should be electronic within 10 years and issued an
executive order to "provide leadership for the development and
nationwide implementation of an interoperable health information
technology infrastructure to improve the quality and efficiency of
health care."[Footnote 4] As part of this effort, the President tasked
the Secretary of HHS to appoint a National Coordinator for Health
Information Technology--which he subsequently did 1 week later. At that
time, the Secretary stated that IT could save the nation $140 billion
annually in health care spending. The executive order also called for
the Coordinator to develop a strategic plan to guide the implementation
of interoperable health IT in the public and private health care
sectors.
Since his appointment, the Coordinator has taken a number of actions to
encourage the nationwide adoption of IT. In July 2004, HHS issued a
document entitled The Decade of Health Information Technology:
Delivering Consumer-centric and Information-rich Health Care. This
framework outlines an approach to achieving interoperability across the
U.S. health care delivery system and establishes four major goals and
12 strategies, listed in table 1. To build upon the framework, in
November 2004, the Office of the National Coordinator for Health IT
issued a request for information seeking public comment by January 18,
2005, on how interoperability of health information technologies and
information exchange can be achieved as part of a national health
information network. HHS is currently evaluating over 500 submissions
received during the comment period. As we testified in July 2004, as
the National Coordinator for Health IT moves forward with this
framework, it will be essential to have continued leadership, clear
direction, measurable goals, and mechanisms to monitor
progress.[Footnote 5]
Table 1: National Health IT Goals and Strategies:
Goal 1: Inform clinical practice with the use of electronic health
records.
Provide incentives for electronic health record adoption.
Reduce risk of electronic health record investment.
Promote electronic health record diffusion in rural and underserved
areas.
Goal 2: Interconnect clinicians so that they can exchange health
information using advanced and secure electronic communication.
Establish regional collaborations.
Develop a national health information network.
Coordinate federal health information systems.
Goal 3: Personalize care with consumer-based health records and better
information for consumers.
Encourage the use of electronic health records.
Enhance informed consumer choice.
Promote use of telehealth systems.
Goal 4: Improve public health through advanced biosurveillance methods
and streamlined collection of data for quality measurement and research.
Unify public health surveillance architectures.
Streamline quality and health status monitoring.
Accelerate research and dissemination of evidence.
Source: HHS.
[End of table]
Potential Cost Savings from the Use of IT:
According to the National Coordinator for Health IT, HHS's initial
estimate of potential nationwide savings resulting from the adoption of
health IT is based primarily on two studies conducted by the Center for
Information Technology Leadership (CITL).[Footnote 6],[Footnote 7] He
also stated that the annual savings estimate is conservative and
excludes clinical encounters from other health care delivery settings,
such as inpatient care, disease surveillance, and clinical research
trials. One of the CITL studies identified $78 billion in annual
savings, while the other study estimated $44 billion from the
widespread implementation of IT used in ambulatory care
settings.[Footnote 8] Both studies estimated savings based on the use
of models to project the value of net cost savings from the adoption of
IT and incorporated information from published studies, expert panels,
and market research. However, CITL and other health care experts
acknowledge that these estimates are based on a number of assumptions
and inhibited by limited data and therefore are not necessarily
complete and precise. The studies reported savings based on (1)
electronically sharing health care data between providers and
stakeholders,[Footnote 9] which resulted in saving time and avoiding
duplicate tests, and (2) avoiding unnecessary outpatient visits and
hospital admissions, as well as more cost-effective medication,
radiology, and lab ordering. Net savings estimated nationwide are
summarized in table 2.
Table 2: Potential Annual Cost Savings from Nationwide Adoption of IT:
Category of IT adopted: Ambulatory electronic health records[A];
Potential cost savings: $78 billion.
Category of IT adopted: Ambulatory computerized provider order entry[D,
B]; Potential cost savings: $44 billion.
Sources: CITL.
[A] Study limitations: (1) the analysis was focused on provider-centric
(i.e., no secondary transactions considered) and encounter-specific
transactions between providers and their stakeholders; (2) financial
value was based on information exchange and interoperability between
entities, not within entities; (3) model does not take into account the
financial impact of avoided tests and other changes in utilization that
flow from improved information exchange; (4) model does not address the
costs of developing relevant standards to support health care
information exchange and interoperability; and (5) estimate of cost
savings assumes widespread adoption of IT in order to achieve financial
savings within 10 years, with 50% of benefits accruing in the first
year of adoption and increasing by 10% each year.
[B] Study limitations: (1) projections are based on a small number of
studies, sometimes extrapolating to national figures from a single data
point; (2) CITL did not incorporate any assumptions about volume
pricing discounts; (3) CITL did not project any savings for pharmacies,
laboratories, or other affiliated providers who would presumable
benefit from improved efficiencies with better orders; and (4) CITL
makes projections for an "average" provider as defined by available
national statistics.
[D] Computerized provider order entry is a software application that
supports the ordering of medications, diagnostic tests, interventions,
and referrals by outpatient providers.
[End of table]
Although HHS had originally given us estimated annual federal savings
of $30 billion associated with the Medicare program, in its comments
HHS stated that it is unable to reliably quantify savings. HHS also
stated that it is actively working to determine what the savings will
be and expects them to be substantial. Although the available data make
estimating cost savings difficult, according to HHS Medicare would
likely save a proportionate amount from reduced utilization of services
for Medicare-funded office visits (because the program uses volume-
based payments for ambulatory and inpatient care) and from reduced use
of medications given inappropriately or unnecessarily.
The annual cost savings shown above assumes fairly high IT adoption
rates, whereas the current rates are low. According to HHS documents,
these savings estimates are based on the assumption that more than half
of all physician practices[Footnote 10] and hospitals would use EHRs
that are connected to a national health information network. Therefore,
increasing the rates of IT adoption is critical to achieving the
benefits cited. However, the results of the surveys and analyses of
adoption rates are varied. Respondents to two recent surveys reported
that only 31 percent of physician group practices[Footnote 11] and 19
percent of hospitals[Footnote 12] use fully operational EHRs. According
to a study by the Commonwealth Fund, approximately 13 percent of solo
physicians have adopted some form of EHR, while 57 percent of large
group practices (50 or more physicians) have adopted an EHR.[Footnote
13]
In summary, IT can improve the efficiency and quality of medical care
and result in costs savings. Although estimated nationwide savings are
primarily based on only two studies with known methodological
limitations and contingent on much higher IT adoption rates, the
potential for substantial savings is promising. The estimated overall
cost savings associated with the adoption of IT in the health care
industry, the federal government's portion of the savings, and
information on current IT adoption rates raise key questions, including
the following:
* Can some savings be realized now given the limited adoption of health
IT, and at what rate will additional savings be realized?
* What actions can be taken to improve IT adoption?
* What additional overall savings are there from other health care
delivery settings, such as inpatient care or public health?
* What savings are there from federal programs, including Medicare,
Medicaid, VA, and DOD?
Agency Comments:
HHS's Acting Inspector General provided written comments on a draft of
this correspondence. These comments are reprinted in enclosure I. HHS
emphasized that costs, benefits, and net savings are difficult to
quantify. Concerning Medicare, HHS stated that the department is
presently unable to quantify specific savings, but it is actively
working to determine what the savings will be; we modified our report
accordingly. Regarding nationwide savings, HHS stated that there are
many studies that estimate the potential for nationwide savings as a
result of the adoption of health IT. We acknowledge that there are many
published studies that discuss cost and other benefits of IT, some of
which we pointed out in our October 2003 report, mentioned earlier in
this correspondence. However, according to the National Coordinator for
Health IT, the initial estimate was based primarily on the studies
cited in our correspondence. In addition, the studies referred to in
the department's comments are based on individual organizations and do
not project nationwide savings. HHS agreed that the current adoption
rates are low and indicated that estimates of rates are varied at best.
The department provided additional examples that illustrate this
variation, which we incorporated. HHS also provided technical comments,
which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Health and
Human Services and other interested officials. We will also provide
copies to others on request. In addition, the report will be available
at no charge on the GAO Web site at http://www.gao.gov. If you or your
staff have any questions about this report or need additional
information, please contact me at (202) 512-9286 or M. Yvonne Sanchez,
Assistant Director, at (202) 512-6274. We can also be reached by e-mail
at pownerd@gao.gov or sanchezm@gao.gov.
Sincerely yours,
Signed by:
David A. Powner:
Director, Information Technology Management Issues:
Enclosure:
DEPARTMENT OF HEALTH & HUMAN SERVICES: Office of Inspector General:
Washington, D.C. 20201:
FEB 11 2005:
Mr. David A. Powner:
Director:
Information Technology Management Issues: U.S. Government
Accountability Office: Washington, DC 20548:
Dear Mr. Powner:
Enclosed are the Department's comments on the U.S. Government
Accountability Office's (GAO's) draft correspondence entitled, "Health
and Human Services' Estimate of Health Care Cost Savings Resulting From
the Use of Information Technology (GAO-05-309R). The comments represent
the tentative position of the Department and are subject to
reevaluation when the final version of this report is received.
The Department provided several technical comments directly to your
staff.
The Department appreciates the opportunity to comment on this draft
correspondence before its publication.
Sincerely,
Signed by:
Daniel R. Levinson:
Acting Inspector General:
Enclosure:
The Office of Inspector General (OIG) is transmitting the Department's
response to this draft report in our capacity as the Department's
designated focal point and coordinator for U.S. Government
Accountability Office reports. OIG has not conducted an independent
assessment of these comments and therefore expresses no opinion on them.
COMMENTS BY THE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES ON THE
U.S. GOVERNMENT ACCOUNTABILITY OFFICE'S (GAO's) DRAFT CORRESPONDENCE
ENTITLED "HEALTH AND HUMAN SERVICES' ESTIMATE OF HEALTH CARE COST
SAVINGS RESULTING FROM THE USE OF INFORMATION TECHNOLOGY (GAO-05-309R):
The Department of Health and Human Services (HHS) appreciates the
opportunity to review the draft correspondence to the Committee on the
Budget, House of Representatives, entitled "Health and Human Services'
Estimate of Health Care Cost Savings Resulting from the Use of
Information Technology" (GAO-05-309R). The GAO draft correspondence
focuses on estimates of potential savings to the health system and
Federal Government programs through widespread adoption of electronic
health records (EHRs), as well as implementation rates and savings
assumptions. The draft correspondence is part of a broader, ongoing GAO
study involving an overview of HHS efforts to develop a national health
information technology (HIT) strategy, lessons learned from the
Department of Defense and Veterans Administration efforts, and the
experience of other countries in their HIT efforts.
Because the focus of the draft correspondence report is on cost
savings, our major comments relate to that issue. We emphasize that the
costs, benefits, and net savings are genuinely difficult to quantify.
In fact, there are several studies in related areas that demonstrate
the potential to achieve a wide range of savings. Moreover, we note
that consideration is not given in the report to the broader benefits
of HIT in areas such as quality improvement, patient satisfaction,
public health, and clinical research.
MAJOR COMMENTS:
Medicare Savings:
At this time HHS is unable to quantify reliably the Medicare savings.
Accordingly, all references to Medicare savings or cost estimates that
are attributable to HHS should be removed from the draft
correspondence. While HHS is presently unable to quantify specific
savings, we are actively working to determine what the savings will be
and expect them to be substantial.
Basis For Nationwide Savings:
There are many studies that estimate the potential for nationwide
savings as a result of the adoption of HIT. The draft correspondence
cites only two such studies conducted by the Center for Information
Technology Leadership. To provide additional resources, excerpts from
other studies are detailed below.
Several studies report that EHR use by physicians results in
substantial improvement in clinical processes. The effects of EHRs
include reducing laboratory and radiology test ordering by 9 to 14%
(Bates, 1999; Tierney, 1990; Tierney, 1987), lowering ancillary test
charges by up to 8% (Tierney, 1988), reducing hospital admissions,
costing an average of $17,000 each, by 2-3% (Jha, 2001), and reducing
excess medication usage by 11% (Wang, 2003; Teich, 2000). A forthcoming
study evaluating the impact of EHRs on resource utilization in two
States demonstrates that physician visits decrease by 9% after EHR
implementation. There is also evidence that EHRs can reduce
administrative inefficiency and paper handling (Khoury, 1998). These
studies are peer-reviewed, and their findings have been replicated
using a variety of methodologies. [See Bibliography]
Adoption Rates:
HHS agrees that, "current (adoption) rates are low." The report cites
adoption rates for fully operational EHRs as 31% for physician group
practices and 19% for hospitals. However, surveys and analyses of
adoption rates are varied at best. To illustrate, the estimate of 31
adoption rate in physician group practices may be somewhat misleading
because physician group practices represent only a small portion of
physicians in the U.S., and the size of the group must be taken into
account when considering such statistics. The majority of physicians in
the U.S. practice as solo physicians or in small group practices, which
have a significantly lower adoption rate for EHRs than larger group
practices. According to a Commonwealth study, approximately 13% of solo
physicians have adopted some form of an EHR whereas 57% of large group
practices of 50 or more physicians have adopted an EHR. This study
estimated that 35% of physicians in practices of 10 to 49 physicians
have EHRs. Moreover, there can be significant variation in what is
considered to be an EHR. Accordingly, we ask that the draft
correspondence reflect the information provided above, including the
lack of consensus on what constitutes an EHR.
Bibliography:
Bates D.W., G.J. Kuperman, E. Rittenberg, J.M. Teich, J. Fiskio, N.
Ma'luf, A. Onderdonk, D. Wybenga, J. Winkelman, T.A. Brennan, A.L.
Komaroff, M. Tanasijevic, "A randomized trial of a computer-based
intervention to reduce utilization of redundant laboratory tests," Am.
J. Med. 106(2), 144-50 (1999):
Jha, A.K., G.J. Kuperman, E. Rittenberg, J.M. Teich, D.W. Bates,
"Identifying hospital admissions due to adverse drug events using a
computer-based monitor," Pharmacoepidemiology and Drug Safety 10(2),
113-19 (2001):
Khoury AT. Support of quality and business goals by an ambulatory
automated medical record system in Kaiser Permanente of Ohio. Eff Clin
Pract. 1998 Oct-Nov; 1(2):73-82.
Teich JM, Merchia PR, Schmiz JL, Kuperman GJ, Spurr CD, Bates DW.
Effects of computerized physician order entry on prescribing practices.
Arch Intern Med. 2000 Oct 9;160(18):2741-7.
Tierney WM, Miller ME, McDonald CJ. 1 The effect on test ordering of
informing physicians of the charges for outpatient diagnostic tests. N
Engl J Med. 1990 May 24;322(21):1499-504.
Tierney WM, McDonald CJ, Hui SL, Martin DK. Computer predictions of
abnormal test results. Effects on outpatient testing. JAMA.
1988;259:1194-8.
Tierney WM, McDonald CJ, Martin DK, Rogers MP. Computerized display of
past test results. Effect on outpatient testing. Ann Intern Med. 1987
Oct; 107(4):569-74.
Wang SJ, Middleton B, Prosser LA, Bardon CG, Spurr CD, Carchidi PI,
Kittler AF, Goldszer RC, Fairchild DG, Sussman AJ, Kuperman GJ, Bates
DW. A cost-benefit analysis of electronic medical records in primary
care. Am J Med. 2003 Apr 1;114(5):397-403.
FOOTNOTES
[1] There is a lack of consensus on what constitutes an EHR, and thus
multiple definitions and names exist for EHRs, depending on the
functions included. An EHR generally includes (1) a longitudinal
collection of electronic health information about the health of an
individual or the care provided, (2) immediate electronic access to
patient-and population-level information by authorized users, (3)
decision support to enhance the quality, safety, and efficiency of
patient care, and (4) support of efficient processes for health care
delivery.
[2] GAO, Information Technology: Benefits Realized for Selected Health
Care Functions; GAO-04-224 (Washington, D.C.: Oct. 31, 2003).
[3] GAO, HHS's Efforts to Promote Health Information Technology and
Legal Barriers to Its Adoption, GAO-04-991R (Washington, D.C.: August
13, 2004).
[4] Executive Order 13335, Incentives for the Use of Health Information
Technology and Establishing the Position of the National Health
Information Technology Coordinator (Washington, D.C.: Apr. 27, 2004).
[5] GAO, Health Care: National Strategy Needed to Accelerate the
Implementation of Information Technology, GAO-04-947T (Washington,
D.C.: July 14, 2004).
[6] Center for Information Technology Leadership, The Value of
Healthcare Information Exchange and Interoperability (Boston: 2004) and
The Value of Computerized Provider Order Entry in Ambulatory Settings
(Boston: 2003).
[7] CITL was chartered in 2002 by Boston-based, nonprofit Partners
HealthCare System as a research organization established to help guide
the health care community in making more informed strategic IT
investment decisions.
[8] Ambulatory care refers to health services provided on an outpatient
basis to those who visit a health care facility or hospital and depart
after treatment on the same day.
[9] CITL defines providers as hospitals and medical group practices and
stakeholders as independent laboratories, radiology centers,
pharmacies, payers, and public health departments.
[10] According to CMS, in 1999, out of 763,519 physicians in the United
States, physicians in solo practices represented 25 percent, group
practices represented 33 percent, and salaried physicians represented
41 percent.
[11] According to the Medical Group Management Association.
[12] According to the 15TH Annual Leadership Survey of the Healthcare
Information and Management Systems Society. The respondents to this
survey consisted of 86 percent that worked for a hospital organization
and 14 percent that worked in other types of health care delivery
organizations.
[13] The Commonwealth Fund, Information Technologies: When Will They
Make It Into Physicians' Black Bags? (New York: December 2004).
