Congress, through its enactment of the "stimulus" bill, is
committed to spending $787 billion on various projects, including
$20 billion to encourage doctors and hospitals to adopt electronic
health records (EHRs). This new spending is a component of the
Obama Administration's health care agenda, which includes the
promotion of health information technology (HIT).
President Obama was quite vocal on the importance of HIT on the
campaign trail last year, and called for a taxpayer "investment" of
$20 billion to $50 billion. While the question of whether to make
this commitment of taxpayer dollars was answered when the President
signed the stimulus bill, there are still a number of unanswered
questions about how to implement EHRs so that they create the
maximum benefit for patients and the minimum disruption for
America's already stressed health care system.
Carrots and Sticks. While EHRs can and will be helpful to
doctors and patients, it is not clear that taxpayer subsidies for
short-term adoption of EHRs, followed by penalties for non-adopters
afterwards, is the right approach. First, it is costly--an
estimated $20 billion. Second, it puts federal officials in the
awkward position of having to determine the best technologies.
Third, it raises another troublesome question: Should taxpayers
purchase a good that some doctors and hospitals have already had
the ability to purchase with their own money?
Beyond philosophical questions, there are a number of practical
hurdles that must be overcome so that the implementation of this
enterprise can be successful. As authorized by the stimulus bill,
Dr. David Blumenthal, the newly appointed HIT "czar" at the U.S.
Department of Health and Human Services (HHS), must write the
payment rules, certification standards, and definitions of key
terms by the end of 2009. According to Blumenthal, "[m]eeting this
deadline will be challenging." At the same time, meeting this deadline the
right way, with Congress and other federal officials helping to
"level the playing field" and create opportunities to improve the
way physicians practice medicine, will be an even greater
challenge. It will be even more difficult to ensure that the
federal government avoids a cookie-cutter, one-size-fits-all
approach that stifles future technological developments.
Next Steps. Since Congress has already committed billions
of dollars to developing a national infrastructure for health
information technology, federal policymakers should ensure that the
taxpayers' "investment" is well spent. First, the Department of
Health and Human Services should make sure that those dollars are
put to the best possible use. In no instance should HHS rules
inhibit innovation that drives productivity in the unique health
care sector of the economy. Second, in any rule making, HHS should
ensure it does not get into the business of picking winners and
losers, but should seek to create a level playing field for firms
entering the health information technology field. Third, HHS should
encourage ease of use and flexibility in the application of such
technology so that health care providerscan adapt different
components in determining what works best for them.
The Promise of Health Information
Converting medical records to electronic form has many potential
advantages. EHRs have the potential to connect doctors with
hospitals, labs, and pharmacies accurately and in real time; give
patients more control over their health care by allowing them to
own their records; and make those records instantly transferable.
This means that the records of a Vermont resident who breaks her
leg in California can easily be available to the attending
California physicians. Physician access to these records can
greatly reduce medical errors, which kill between 44,000 and 98,000
Americans every year, according the Institute of Medicine. Performed
properly and together, these changes can reduce costs, limit the
need to maintain cumbersome paper records, improve safety and
quality, and potentially improve the way American doctors practice
medicine. Implemented correctly, the promotion of electronic
medical records can be neatly compatible with patient-centered
health care reform.
Better Medicine. The best-known study on this subject was
conducted by the RAND Corporation. RAND estimated that an effective
HIT program, properly designed and executed, could save $77 billion
annually. RAND researchers argued that HIT would improve safety
through alerts and reminders that could warn doctors about possible
adverse drug reactions. The authors stated that HIT would help
prevent and manage diseases. HIT could scan patient charts and
generate suggestionsfor vaccines and screening tests depending on
individual risk factors. For those with chronic disease, HIT can
also recommend appropriate tests tailored to an individual's
In addition, HIT can provide doctors with the necessary
information to make appropriate medical decisions. Today, even the
most cutting-edge doctors are not aware of all the latest medical
developments: It currently takes about 17 years from discovery of
therapies to regular clinical use. With the right kind of EHRs,
doctors could use electronic records to obtain what is known as
decision support--real-time guidance from databases, such as the
new "Medpedia," which tries to accumulate all the latest diagnostic
and therapeutic guidelines. Armed with these tools, doctors could
potentially decrease the number of misdiagnoses, errors, and
Patient Control. Furthermore, personal health records
(PHRs), which let individuals maintain their own information in a
portable, Web-based platform, will also give patients a greater
stake in their own care. In a recent study published in Health
Affairs examining the Kaiser Permanente HIT system, researchers
demonstrated patients' willingness to manage their health care
online. Web site activity among Kaiser patients between 2004 and
2007 showed that there is a real potential for better results by
getting patients more involved in their own health care through
EHRs and PHRs. In 2004, 10.7 million people visited the site. By
2007, site visits had tripled to 33 million.
More actively involved patients, coupled with better-informed
doctors communicating with one another, can reduce the number of
expensive office visits. According to another study of the Kaiser
system, Kaiser Permanente Hawaii saw a 26.2 percent decrease in
office visits in the three years after implementing a comprehensive
HIT system. Patients became far more likely to rely on cheaper and
faster e-mail and phone consultations, facilitated by the fact that
their doctors had electronic access to all of the patient
information. Applied broadly, this kind of change could generate
enormous cost savings in a $413 billion program like Medicare,
which has over 40 million enrollees.
HIT: A Tool, Not a Magic Wand
At the same time, while health information technology holds a
great deal of promise as a way of reducing medical errors and
relieving patients of the task of having to fill out the same form
every time they go to a new doctor (sometimes even the same
doctor), as a practical matter the technology is still in its
infancy. There remain a host of questions about how effective
electronic medical records and personal health records will be in
improving care and reducing costs--the two key factors that
American policymakers seem to value most.
It is a fair question whether or not the use of electronic
medical records will save costs. In examining this issue, the
Congressional Budget Office (CBO) found that, "By itself, the
adoption of more health IT is generally not sufficient to produce
significant cost savings." The CBO was also dismissive of the RAND
study mentioned above, as it noted that RAND focused mainly on
studies that found positive effects of HIT. The CBO concluded that
RAND overstated the potential savings to the federal budget and to
the health care system.
Likewise, Drs. Jerome Groopman and Pamela Hartzband of Harvard
Medical School were extremely skeptical of President Barack Obama's
optimistic claim that HIT will save $80 billion annually in health
care costs. As Groopman and Hartzband stated, "We need the
president to apply real scientific rigor to fix our health-care
system rather than rely on elegant exercises in wishful
Other concerns about HIT are in the areas of safety and
productivity. Researchers at the University of Pennsylvania found
an increased likelihood of 22 types of medication errors
stemming from the adoption of a computerized physician order entry
(CPOE) system. According to the study, the error risks were quite
common, occurring at least weekly. A study of child mortality rates at a
pediatric intensive care unit at the University of Pennsylvania
found that mortality rates increased from 2.8 percent to 6.57
percent in the five months after a CPOE system was implemented.
Cedars-Sinai Medical Center in Los Angeles shut down its CPOE
system after hundreds of doctors complained the system was
difficult to use and a threat to patient safety.
It is also not clear whether EHRs will increase doctor
productivity. In one study of group practitioners with a new EHR
system, doctor productivity decreased 10 percent to 15 percent for
the first several months until doctors were fully trained on the
new system. These experiences, of course, do not
prove that EHRs are unsafe or unproductive, only that they are a
tool, and like all tools, must be used wisely in order to be
Obstacles to Widespread HIT Use
The preponderance of evidence suggests that EHRs are a good
thing--although they should definitely not be oversold--and that
America's health care system could benefit from greater adoption
levels, which are currently quite low. According to a recent study
published in the New England Journal of Medicine, only 1.5
percent of America's hospitals have a comprehensive electronic
records system in all clinical units, and 9.1 percent of hospitals
have a basic system in at least one clinical unit. Seventeen
percent have computerized provider-order entry for medications.
Furthermore, the CBO has estimated that about 12 percent of
physicians use electronic systems. That said, it is likely that the country
is on an upward trajectory in terms of EHR adoption. According to
the CBO, even before the stimulus bill passed, 45 percent of
hospitals and 65 percent of physicians were likely to have EHRs by
High Costs. There are a variety of reasons why hospitals
or doctors could be reluctant to adopt EHRs. First, the cost. The
initial capital investment in EHRs is estimated at between $15,000
to $50,000 per doctor and $10 million for a midsize hospital. A First
Consulting Group study found it would cost a 500-bed hospital $7.9
million in initial costs and $1.35 million in annual operating
costs. The same study estimated a 250-bed hospital would need to
pay $3 million in implementation costs and $700,000 in annual
operating costs. They projected initial costs of $14,500 per bed
with annual operating costs constituting 19 percent of
There are other economic and non-economic reasons for delay.
Right now, the financial incentives in medicine do not reward
doctors for performance, so improved performance using EHRs is not
a priority for doctors. If Medicare or insurers paid doctors for
improved outcomes, rather than per procedure, doctors might have a
greater economic incentive to invest in HIT.
Physician Resistance On the non-economic side, cultural
issues, especially among older doctors, are a challenge as well.
Doctors in older practices will find it a hassle to transfer their
paper records to computers, and established doctors will also have
a more difficult time changing their ways. A 2008 study sponsored
by the Department of Health and Human Services and the Robert Wood
Johnson Foundation found that 29 percent of non-computerized
hospitals cited doctor resistance as a major barrier to HIT
implementation, and 42 percent claimed doctor resistance as a minor
Pamela Lane, vice president of health informatics for the
California Hospital Association, sees hospital reluctance this way:
"I'm not sure it's only about cost. I think it's also about
Dr. David Blumenthal, the Obama Administration's recently appointed
health IT czar, has written that the barriers to HIT adoption and
use of EHRs include "the perceived lack of financial return from
investing in them, the technical and logistic challenges involved
in installing, maintaining, and updating them, and consumers' and
physicians' concerns about the privacy and security of electronic
HIT and the Government
The real question is not whether doctors and hospitals should
adopt EHRs, but which is the best way to encourage them to do so.
In this connection, policymakers should reconsider the government's
role in the process. Recent experience suggests that the two most
likely roles for the federal government are as cheerleader for HIT
and as a payer for medical services delivered through government
health care programs.
The Bush Approach. The Bush Administration took an
unabashedly "cheerleader" approach to the promotion of HIT within
the framework of a patient-centered approach to health care policy.
In April 2004, for example, President George W. Bush told a
professional audience in Baltimore: "We're here to talk about how
to make sure the government helps the health care industry become
modern in order to enhance the quality of service, in order to
reduce the cost of medicine, in order to make sure the patient, the
customer, is the center of the health care decision-making
This exhortation was accompanied by specific policy goals.
First, President Bush declared a goal of 50 percent of Americans
with access to a privacy-protected, interoperable EHR by 2014;
second, the Bush Administration established a non-governmental way
to set HIT standards for interoperability and privacy protection.
The idea, as outlined by former HHS Secretary Michael O. Leavitt,
was for the federal government to lead a process to set standards,
in conjunction with the private and not-for-profit sectors, which
would enable the creation of a platform allowing EHRs to thrive,
but not to have the government impose a "one-size-fits-all"
standard that could freeze technology in one place.
In other words, the government should not be in the position of
choosing between VHS and Betamax when Americans are already in a
Blu-Ray world. Third, the Bush Administration established small,
targeted demonstration projects to encourage some small- and
medium-sized practitioners to adopt EHRs. The demonstration
projects took place in 14 communities around the country that had
shown an interest and an ability to incorporate new EHR platforms,
and that had community support for the endeavor. Rather than force
EHRs on doctors, the idea was to build a groundswell of support for
effective, integrated EHRs and to have the successful practices
serve a missionary role in highlighting them.
The Obama Approach. Given the many hurdles and technical
difficulties with EHRs, it is not clear that rapid
government-financed adoption is the best way to proceed. But that
is exactly what the Obama Administration is doing: subsidizing the
adoption of EHRs by doctors and hospitals for four years, after
which it will likely penalize doctors and hospitals that do not
have EHRs in place.
The Obama approach also puts the job of setting standards firmly
in the hands of federal officials. The HITECH Act, which Congress
enacted as part of the stimulus bill earlier this year, codifies
the Office of the National Coordinator for Health Information
technology (ONCHIT) within HHS and directs it to "develop standards
necessary to achieve interoperability; establish criteria for
certifying HIT products; ensure the privacy and security of
electronic health information; and help facilitate the creation of
prototype health information networks."
The HITECH Act also establishes several grant programs to
provide funding for HIT infrastructure, purchasing certified EHR
systems, training, and dissemination of best practices. The act
also authorizes grants to states for low-interest loans to help
providers finance implementation of HIT. Most important, the HITECH
Act authorizes Medicare incentive payments beginning in 2011 to
encourage the adoption and use of certified EHRs. These payments,
between $15,000 and $50,000 for individual practices, and in the
millions for hospitals, are phased out over time and replaced by
penaltiesfor not using certified EHRs beginning in 2016. It also
expands privacy protections, known as HIPAA requirements (contained
in the Health Insurance Portability and Accountability Act (HIPAA)
of 1996). Specifically, it strengthens enforcement of the HIPAA
privacy rule and creates a right for individuals to be notified in
the event of a privacy breach.
Pricey Pitfalls. There are three main problems with the
Obama approach: (1) It is costly; (2) it may be a solution in
search of a problem; and (3) it may not have the effect intended.
The goal, as laid out in the stimulus bill, is to reach EHR
adoption rates of 70 percent for hospitals and 90 percent for
physicians in ten years. Yet as noted earlier, the CBO has already
predicted that 45 percent of hospitals and 65 percent of physicians
will have EHRs by 2019. In other words, many doctors and hospitals
are likely to adopt electronic systems even without the billions of
dollars of taxpayer subsidies for the adoption and "meaningful use"
of EHRs, which begin in 2011.
In terms of cost, media reports on the stimulus bill typically
describe the taxpayer "investment" in EHRs as $20 billion. This is
a net number, as it assumes $12 billion in estimated savings
for EHR adoption that may or may not happen. As a result, the gross
spending estimate is actually $32.7 billion. However, except for an
initial $2 billion in discretionary spending for HIT
infrastructure, the rest of the money is in non-discretionary
dollars, which means that gross spending is uncapped, and the $32.7
billion is merely a guess as to how much it will truly cost
taxpayers to finance the projected adoption rates for doctors and
hospitals. Some estimates reach as high as $50 billion, which is
unsurprising, given that on the campaign trail, Candidate Obama
called for an investment of $20 billion to $50 billion in HIT.
The second issue--that the Obama approach may be a solution in
search of a problem--is inherent in the concentration of power that
the HITECH Act transfers to the federal government. According to
the bill, ONCHIT must establish standards that IT providers could
meet by the end of 2009, and must make a compliant product
available unless the market meets the need. As a result, the entire
health care industry is likely to spend the next year waiting to
see what develops out of the ONCHIT coordinator's office with
respect to the payment rules, certification standards, and
definitions of key terms, such as "meaningful use," upon which
acceptance of the federal dollars are predicated.
Savvy HHS officials recognize the difficulty of this entire
process. As noted, Dr. Blumenthal specifically said before taking
the job of overseeing this process that meeting the deadline would
prove "challenging." Furthermore, Blumenthal recognizes that "much
will depend on the federal government's skill in defining two
critical terms: 'certified EHR' and 'meaningful use,'" of which a
draft definition was just released for public comment. The
challenging nature of the deadline, combined with the difficulty in
solving all of the questions involved, could mean that the federal
encouragement of EHRs could, at least in the short term, have the
very opposite of its intended effect. The new approach could serve
as an anti-stimulus, as companies could be reluctant to develop new
products until the government determines the certification
standards for the EHRs. Furthermore, doctors and hospitals, seeing
the promise of federal dollars 21 months away, will be unlikely to
buy new record systems until the government money starts to
Indeed, there is already some evidence that this is the case.
The Wall Street Journal has reported that General Electric
will offer "no-interest loans to hospitals and health-care
providers that purchase GE's health-care information technology."
The reason for this, according to Vishal Wanchoo, president and
chief executive of GE Healthcare IT, is that many hospitals are
cash-strapped and do not know when they will receive stimulus
What the Administration Should Do
The Congress and the Administration have already enacted the
stimulus bill, which funded and put into place an infrastructure
for the promotion of health information technology. Given the
current circumstances, federal policymakers should do what they can
to promote EHR's widespread use within a broader framework of
patient-centered, consumer-driven health care reform. This can be
done while simultaneously respecting the personal freedom of
patients and the professional integrity of their physicians. The
Administration should encourage HHS to:
- Aim Higher Than Electronic Cash Registers. While
subsidizing adoption of EHRs may not be the most free-market
approach, the Administration should ensure that the $20 billion to
$50 billion investment in HIT is put to the best possible use. Dr.
Blumenthal's office should try to use this investment to improve
the practice of medicine by allowing for creativity and new ideas,
while ensuring that computerized systems can communicate with one
another, rather than imposing a cookie-cutter approach to this
- Do Not Pick Winners and Losers. Former HHS Secretary
Leavitt was extremely concerned about government making short-term
decisions that would have problematic long-term implications on
technology development. For that reason, he worked to set up the
Certification Commission for Healthcare Information technology
(CCHIT), funded by a combination of federal dollars and
private-sector fees, so that a non-governmental body would be
making the certification decisions that established the HIT playing
field. HHS should continue to use a CCHIT-like collaborative model,
with key players making consensus-based decisions, rather than
having the federal government decide the shape of developing
technologies by fiat.
- Adopt a Platform Model Approach. Drs. Kenneth Mandl and
Isaac Kohane at Boston Children's Hospital have recommended a model
like the Apple iPhone platform, which would allow other software
companies to develop software applications that consumers can
download.  The platform stays the same, but
applications compete. Such a market for HIT would encourage
competition based on value and cost. Individual systems would only
need to perform limited functions so providers could use a
laboratory-results application from one company and a billing
system from another rather than having to obtain all services from
a single provider. This approach could foster innovation and
competition, and allow this nascent field to develop in the most
creative way possible.
Health information technology can lead to significant
improvements in the delivery of medical care. EHRs, especially, are
inherently good, and the federal government should take some steps
to encourage adoption, interoperability, and to guarantee privacy.
At the same time, the Obama approach has the potential to assign
the government the role of picking winners and losers, thereby
preventing some currently unknowable technologies from emerging in
the future, to cost far more than is necessary to accomplish the
goal, and to adopt technologies that do not take advantage of the
full promise of HIT.
The Congress has authorized the funding for HIT, and the
Administration is responsible for implementing the program. In
creating the rules of the road, the Department of Health and Human
Services should be very careful to ensure that its approach does
not freeze out future technologies, and that it allows for creative
new approaches that have the potential to transform the way
American doctors--possibly doctors around the world-- practice
Tevi Troy, Ph.D., Deputy Secretary of
the Department of Health and Human Services from 2007 to 2009, is a
visiting senior fellow at the Hudson Institute. Jason Fodeman,
Graduate Fellow in Health Policy at The Heritage Foundation,
contributed to the research for this report.
Blumenthal, "Stimulating the Adoption of Health Information
Technology," The New England Journal of Medicine, Vol. 360,
No. 15 (April 2009), p. 1478. The article was written before
he accepted his new position in the Obama Administration.
Kohn, Janet M. Corrigan, and Molla S. Donaldson, To Err Is
Human: Building a Safer Health System (Washington, D.C.:
National Academy Press, 2000).
Silvestre, Valerie M. Sue, and Jill Y. Allen, "If You Build It,
Will They Come? The Kaiser Permanente Model of Online Health Care,"
Health Affairs, Vol. 28, No. 2 (March/April 2009), pp.
Chen, Terhilda Garrido, Don Chock, Grant Okawa, and Louise Liang,
"The Kaiser Permanente Electronic Health Record: Transforming And
Streamlining Modalities of Care," Health Affairs, Vol. 28,
No. 2 (March/April 2009), pp. 323-333.
Groopman and Pamela Hartzband, "Obama's $80 Billion Exaggeration,"
The Wall Street Journal, March 12, 2009, at http://online.wsj.com/article/SB123681586452302125.html
(June 18, 2009). Note: Dr. Groopman and Dr. Hartzband are both
self-identified political supporters of President Obama.
Joshua P. Metlay, Abigail Cohen, Brian Abaluck, Russell Localio,
Stephen E. Kimmel, and Brian L. Strom, "Role of Computerized
Physician Order Entry Systems in Facilitating Medication Errors,"
The Journal of the American Medical Association, Vol. 293,
No. 10 (March 9, 2005), pp. 1197-1203.
Han, Joseph A. Carcillo, Shekhar T. Venkataraman, Robert S.B.
Clark, R. Scott Watson, Trung C. Nguyen, Hülya Bayir, and
Richard A. Orr, "Unexpected Increased Mortality After
Implementation of a Commercially Sold Computerized Physician Order
Entry System," Pediatrics, Vol. 116, No. 6 (December 2005),
Gans, John Kralewski, Terry Hammons, and Bryan Dowd, "Medical
Groups' Adoption of Electronic Health Records and Information
Systems," Health Affairs, Vol. 24, No. 5 (September/October
2005), pp. 1323-1333.
Jha, Catherine M. DesRoches, Eric G. Campbell, Karen Donelan,
Sowmya R. Rao, Timothy G. Ferris, Alexandra Shields, Sara
Rosenbaum, and David Blumenthal, "Use of Electronic Health Records
in U.S. Hospitals," The New England Journal of Medicine,
Vol. 360, No. 16 (April 16, 2009), pp. 1628-1638.
on the Costs and Benefits of Health Information Technology," CBO,
Information Technology for Economic and Clinical Health Act,"
Congressional Budget Office, January 21, 2009.
M. Goldstein and David Blumenthal, "Building an Information
Technology Infrastructure," The Journal of Law, Medicine
& Ethics, Vol. 36, No. 4 (Winter 2008), p. 712.
on the Costs and Benefits of Health Information Technology," CBO,
M. DesRoches, Eric G. Campbell, Sowmya R. Rao, Karen Donelan,
Timothy G. Ferris, Ashish Jha, Rainu Kaushal, Douglas E. Levy, Sara
Rosenbaum, Alexandra E. Shields, and David Blumenthal, "Electronic
Health Records in Ambulatory Care--a National Survey of
Physicians," The New England Journal of Medicine, Vol. 359,
No. 1 (July 3, 2008), p. 58.
Blumenthal, "Stimulating the Adoption of
Health Information Technology," p. 1477.
D. Mandl and Isaac S. Kohane, "No Small Change for the Health
Information Economy," The New England Journal of Medicine,
Vol. 360, No 13 (March 26, 2009), pp. 1278-1281.