Texas hospitals with higher health information technology expenditures have higher revenue: A longitudinal data analysis using a generalized estimating equation model

The Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009, part of the American Reinvestment and Recovery Act, allocated nearly $29 billion over ten years for the implementation and meaningful use of electronic health records (EHRs) throughout the United States (U.S.) health care delivery system. Most of this budget will be spent to incentivize the adoption of health information technology (IT). Hospitals that satisfy meaningful use criteria can receive $2–10 million, and these funds have already been used to support health IT adoption for eligible providers since 2011.

A great deal of prior research has demonstrated the potential benefits of adopting health IT in the hospital setting. These benefits include elimination of duplicate or unnecessary tests and adverse drug events, conserving healthcare provider time and effort by making information more readily available, and cost savings associated with increased efficiency or productivity metrics [1]. A recent economic evaluation meta-analysis of health IT found that nearly 70 % of studies demonstrated value for money of health IT [2]. Other reviews have also shown positive results in specific aspects of medication management [3‐7] and chronic disease management such as preventive care and reminders [8‐12].

Despite numerous attempts to reveal benefits from health IT, most previous studies on the economic benefits of health IT adoption have focused on cost reduction in the care of individual patients. However, an important managerial question that remains unanswered: does health IT adoption increase hospital revenue? While several studies have demonstrated the positive effects of health IT on revenues through an increase in patient days, outpatient volume [13, 14] and in reimbursement rates through contractual changes [15], they were either single-site or simulation studies.

Health IT can increase hospital revenues in many ways, including reductions in hospital stay, redundant tests, medical errors and administrative expenses [16, 17]. Indeed, previous studies have found a positive association between health IT and hospital performance [18‐21]. However, findings from prior studies examining the effects of health IT on costs have been inconsistent, which may result from their use of different data sets and different IT applications. Similarly, several single-site studies have explored the association between health IT and health care costs [22, 23], and they also have reported inconsistent findings. Recently, researchers have examined the relationship between IT adoption and hospital-level costs using the large samples of hospitals [24‐26], but, similarly, they reported mixed findings. In one study, Borzekowski [24] used a complete census of 3000 U.S. hospitals with more than 100 beds each from 1987 to 1994 to examine the relationship between health IT use and hospital operating costs. The study used multiple data sources: hospital cost reports (a minimum dataset), the American Hospital Association Annual Survey of Hospitals and the Healthcare Information Management and Systems Society (HIMSS). The study found that both financial/administrative and clinical IT systems at most automated hospitals were associated with lower costs three to five years after adoption.

Furukawa et al. [25] used an unbalanced panel of 326 general acute care hospitals in California to examine the effects of electronic medical records (EMRs) on length of stay, hospital cost, nurse staffing and nurse-sensitive patient outcomes for 1998–2007. They found that EMR use was associated with longer length of stay, higher cost per discharge and lower rates of in-hospital mortality. In terms of nurse staffing, they found that EMRs increased registered nurse hours per patient day and reduced licensed vocational nurse cost per hour.

DesRoches et al. [26] also explored the effect of EMR adoption on quality, efficiency, and cost using cross-sectional data, including the American Hospital Association (AHA) hospital IT survey and annual survey, Hospital Quality Alliance database and The Medicare Provider Analysis and Review. The work included a national sample of 2952 hospitals and cost was measured by the observed-to-expected cost ratio. The study did not find a significant association between EMR adoption and quality of care, efficiency or cost.

Other studies examined the effect of health IT on cost at the discharge level. Amarasingham et al. [27] examined the cross-sectional association between the level of automation measured by physicians’ daily interaction with the IT system and inpatient mortality, complications and cost. They found that hospitals with an automated IT system had fewer complications, lower mortality rates and lower costs, with no difference in length of stay.

To the best of our knowledge, this study is the first to examine the effects of health IT expenses on hospital revenue. To this end, the present study investigates the effects of health IT expenses on revenue by using a large sample of hospitals in Texas from 2007 to 2010. In this study, we selected the state of Texas because Texas has a population of 25.1 million and is the second-largest U.S. state in population just after California. Also, Texas experienced the highest population growth for any U.S. state between 2000 and 2010. However, the basic EMR adoption rate in Texas is 34.8 %, one of the lowest rates among U.S. states [28, 29]. Thus, if there is empirical evidence of the positive relationship between health IT adoption and hospital revenue, it will encourage hospitals to adopt health IT systems and eventually improve quality of care.

To explore the possibility of differential effects on revenue among intra-hospital settings, we modeled the effect of health IT expenses on three different measures of revenue: total revenue, inpatient revenue and outpatient revenue. We made two main contributions to the healthcare IT field. The first contribution of our study is our measure of health IT. Most prior research on health IT has focused on specific applications, such as EMR. Given that there are more than 50 IT applications in hospitals in our sample (HIMSS), focusing on specific IT applications may result in a biased estimate in health IT investment because multiple health ITs have a complex relationship with one another. Thus, we measured IT expenses as the dollar amount given on a hospital’s financial report. The second contribution is the methodology we employed the generalized estimation equation (GEE) model with an independent error component to control for clustered error within hospitals.

Table 1 describes hospital utilization, hospital characteristics and market characteristics. The average number of inpatient days was 32,751, while the number of outpatient visits was almost three times larger. Emergency visits and government admissions were 24,865 and 4089, respectively. The average number of licensed beds was 179. The total health IT expenses were around $3.7 million per hospital over a four-year period. For more detailed information, we tracked health IT expenditure from 2007 to 2010 in Fig. 1. This indicates that health IT expenditure significantly increased from 2007 to 2008, but decreased slightly from 2009 to 2010. For-profit hospitals accounted for 34.3 % and not-for-profit hospitals accounted for 30.9 %. More than one fifth of the hospitals in our sample were non-teaching hospitals. Competition measured by the HHI was 54.9 %. The average total revenue was $127 million, gross inpatient revenue was $230 million and gross outpatient revenue was $143 million.

Table 2 presents GEE regression results with an independent variance-covariance matrix. We employed three measures of revenue as dependent variables (total revenue, gross inpatient revenue and gross outpatient revenue) because health IT expenses may affect revenue differently across inpatient and outpatient settings. The left-most column shows the effect of health IT expenses on total revenue. We found that health IT expenses were significantly and positively associated with total revenue. Specifically, total revenue was expected to increase by 8 % when health IT expenses increased by 100 %. We also found that hospital utilization including inpatient days and outpatient visits was positively associated with total revenue. However, other utilization such as emergency visits and government admissions was negatively associated with total revenue. Other hospital characteristics that were significantly and positively related to total revenue included teaching status and a more competitive environment.

In the second and third columns of Table 2, we compared the effect of IT on gross inpatient and outpatient revenue. The magnitude of the effect was greater for gross outpatient revenue than for gross inpatient revenue. Specifically, when health IT expenses increased 100 %, gross inpatient and outpatient revenue were estimated to increase by 4.7 and 5.8 %, respectively.

Hospital utilization showed different patterns of gross inpatient and outpatient revenue. For example, the inpatient days were more associated with gross inpatient revenue than with gross outpatient revenue. However, the outpatient visits were only associated with gross outpatient revenue. Other utilizations including emergency visits and government admissions were differently associated with gross inpatient and outpatient revenue. Also, hospital characteristics play roles in deciding gross inpatient and outpatient revenue; system members, ownership such as government and not-for-profit and more competition were positively associated with gross inpatient and outpatient revenue.

We examined the effects of health IT expenses on revenue at the hospital level using Texas AHA data from 2007 to 2010. The GEE model was employed to control for variance-covariance error in financial information and clustering error within hospitals. We found a significant and positive effect of health IT expenses on hospital revenue. Our findings are consistent with those of previous studies [13, 21, 50]. Health IT makes patient information easily accessible where it is needed, supports better health care decision making, promotes better coordination of care, increases processing speed and eliminates duplicate or unnecessary tests [51]. Accordingly, health IT may result in increased revenue in a hospital setting. The most evident explanation for this includes improved capabilities facilitated by health IT such as an EMR system that allows capture of previously lost revenue by eliminating inefficiency [13].

As expected, we found that hospital utilization showed difference pattern on hospital revenue. Specifically, while inpatient days and outpatient visits were positively associated with revenue, emergency room visits and government admissions were negatively associated with revenue. This suggests that hospitals lose money on emergency room visits and government admissions [52]. Patients admitted to the emergency room are cared for regardless of their ability to pay because emergency care is the last safety net. Emergency physicians thus provide uncompensated care to uninsured patients, which may reduce hospital revenue [53]. Also, a recent study found that the bad debt provision, as the one component of uncompensated care was negatively associated with operating margin among private non-profit hospitals [37]. Moreover, the reimbursement rate from government admissions has been reported to be less than that of private insurers; private insurers reimburse an average of $1226 for low-back disc surgery, while Medicare will only reimburse $654 [53].

Hospital characteristics also played a significant role in hospital revenue. Teaching status and a competitive environment were important factors in modeling total revenue. We found that teaching status was positively associated with hospital revenue. Moreover, a more competitive environment was positively associated with hospital revenue, suggesting that competition may improve efficiency, which can lead to improved revenue generation.

Moreover, we investigated whether the effect of health IT expenses differs between inpatient and outpatient settings. We found that health IT had a stronger association with gross outpatient revenue than inpatient revenue. Prior studies using HIMSS data focused on inpatient stays because EMR adoption information was available only for inpatients, not for outpatients. However, by utilizing all IT expenses in the hospitals in our model, we revealed that health IT expenses were more associated with the outpatient setting revenue. Compared to the inpatient setting, the outpatient setting is more complex with numerous procedures, surgeries and tests [54]. It is important that information is acquired quickly, there is efficient feedback about appropriateness of the procedure and costs of medication is readily accessible. Another explanation is related to the current trend of shifting inpatient procedures to outpatient procedures [54]. With this prevailing trend, hospital health IT behavior might be optimized in the outpatient setting where the effect of health IT on revenues is greater.

There are several limitations to consider when interpreting our findings. The first limitation pertains to the limited external validity as we used data from hospitals in Texas. We are, therefore, unable to generalize our findings to other states with different patterns of IT expenses or other countries with different hospital financing systems. Second, for the purposes of this study, ‘health IT expenses’ were broadly defined as dollars invested in both capital and operations related to IT. Also, our measure of IT expenses was a flow variable, not a stock variable, that was measured as the accumulated quantity existing at that time. Thus, if we used stock variables as were used in a previous study [21], the effect of IT capital on revenue would be larger. Moreover, while we included IT operating expenses in the IT expense measure, certain costs of health IT, like backfill time for IT personnel, management or workflow redesign, could not be measured. However, the time period we selected occurred before the HITECH act, which means that EHR adoption rate is low (around 1–2 % of revenue) [21, 30]. Thus, unmeasured costs of health IT spending may be trivial. Third, IT expenses may differ in a context that we could not observe in the data, such as quality or efficiency. In this case, the estimators may remain biased. Fourth, there may be reverse causality between revenue and health IT investment. For example, hospitals that expect more revenue may have been more likely to invest in health IT. Thus, in this case, our estimates may have been biased. Fifth, the associations we are investigating are likely affected by the baseline status of health IT; however, we could not access this data. Thus, this potential association between health IT expenses and revenue may change over time depending on EHR implementation within those systems. Sixth, the time period of data collection was just before the implementation of the HITECH act. Thus, the results of our study may be different from the current period or the period just after implementation of the HITECH act. Hospitals did not have much incentive to adopt health IT systems before the HITECH act, while they were recommended to adopt health IT systems by the HITECH act. Last, but not least, there may be unobserved confounding factors that might impact our estimates; for example, organizational and management behavior may be correlated with IT investment [24]. Many barriers for adopting IT system were reported; workflow disruption, communication among users, complexity, physical space and resistance from physicians [30, 55]. Thus, these barriers could reduce the effect of IT system on revenue even if IT system was adopted in the hospitals.

The current work investigates the association between health IT adoption and hospital revenue. We filled a gap in the literature concerning the study of health IT adoption by revealing the beneficial effects of health IT expenses on hospital revenue. An important finding is that hospitals that incurred greater health IT expenses tended to generate more revenue, and the magnitude of the observed association was particularly large in the outpatient setting of hospitals. Future research is needed to confirm our findings using a national sample of hospitals.