Can Health Information Technology Bend the Cost Curve?
Most if not all of us working in the health domain appreciate the need to transform the U.S. health sector. The strategic dialogue is often framed around “bending the curve” of total health care costs. In other words, changing the behavioral demand and market cost structures of U.S. health care to improve health status and dramatically reduce the cost of care per capita per year in this country. Recently, this dialogue has turned to the role of health care information technology (HIT) in generating this transformation through the Office of the National Coordinator HIT Meaningful Use Framework(1). This dialogue leads the inquisitive mind to a fundamental question of the value proposition of HIT:
- Can HIT alone generate transformation? The most likely answer is no.
- Can HIT along with business and clinical innovation generate transformation? Likely yes, but…
While the academic research into the field of performance returns from information technology is at best characterized as fragmented, there is a body of knowledge in the literature that has been producing revealing and relevant findings. This research tells us that HIT investments can generate value for organizations and their customers and stakeholders, but the true investment in HIT is larger and broader than you may think. Some of the early and leading researchers in the field have found that value generation is based upon process innovation, or
…investment in the intangible assets of the organization — training people, redesigning processes, harmonizing policy and complementary mechanisms, and IT — for the purposes of generating competitive advantage.(2)
Eric Brynjolfsson and Lorin Hitt at MIT found on average across all sectors that success in capturing the potential return on investment from IT (e.g., cost reductions, improved quality) is associated with investment in the intangible assets of the organization on the order of 10:1 of the costs of the IT itself.(3)(4) The evidence is simply that organizations do not do well if they spend a lot of money on IT projects without also radically reorganizing to take advantage of the technology.(5)
In my own research in the area of aggressiveness in HIT innovation strategies, presented in 2006, I used Brynjolfsson’s definition of innovation to construct seven HIT investment strategy classes. The first class contained the most aggressive investment strategy and was labeled “Pioneer with High Commitment,” because these facilities achieved for four consecutive years (1999-2002) national peer recognition for the degree and quality of their HIT integration within the clinical and business process. The sixth HIT investment strategy class was labeled “Follow-the-Leader,” because these facilities achieved the same national recognition only in year 2002. Classes two through five filled the gap between Classes one and class six. The seventh class was “The Rest of the Sector,” as these facilities did not achieve the same national peer recognition for their HIT during the study period; these facilities were not innovating in the same league as the others.
Interestingly, while all six aggressive innovator strategy classes outperformed the hospitals that did not aggressively innovate, there was no obvious performance benefit differential between “Pioneer with High Commitment” and “Follow-the-Leader.”(6) Following from that work, other researchers found evidence of a threshold level of HIT innovation investment necessary — a tipping point — to realize operational cost reductions.(7) This leads to two theories of HIT innovation:
1. There is a tradeoff in the returns to aggressive HIT and process innovation implementation that suggests an agile imitation strategy would be more cost-effective to the organization than an aggressive leading-edge strategy.
2. There are necessary and sufficient bundles of IT and process innovation for U.S. hospitals — a tipping-point above which incremental gains decrease and costs increase.
A related area of research is whether there are organizational attributes associated with generation of value from IT investments. The answer here is a clear and strong “yes.” Evidence of the attributes associated with high-performing organizations has been identified. For one, Brynjolfsson has found that technology investment or high-performance work practices in isolation seem to contribute very little to productivity growth. The big gains flow only to companies that do both:
One of the things that is underappreciated is the amount of innovation that goes on throughout organizations following the introduction of new technology … Technology typically makes a lot of information available at a very low cost. You want to encourage people to find new ways of using that information.(8)
Other researchers have found that organizational innovators were generally inclusive and flexible in planning processes, yet their approach to innovation was known and structured.(9) Achieving competitive advantage from innovation and IT to these firms was not random, it was not chaotic. It was transparent and open, and purposeful participation was expected.
Similarly, I have found in studying a panel of 220 high-performing American hospitals that there was a cluster of organizational attributes that were associated with high-performance and HIT implementation.(10) There were 70 organizational attributes used in this study. HIT was necessary, but it was not sufficient to explain most performance gains. Clearly, within this sample of high-performing hospitals with various levels of commitment to integrating IT within business and clinical processes, HIT did matter in statistically significant ways but it is a story of dependent performance. Taken alone, HIT explained no more than 13 percent of total variation in any of the models.
The most significant finding from this study was that best performance was associated with organizational commitment to aggressively integrate innovation with HIT implementation, a separate HIT governance business unit, and an explicit focus on the national initiatives of clinician adoption of HIT that produced the highest performance across the set of performance measures. It was the interactions of executive governance strategies, HIT governance strategies, commitment to business and clinical process innovation, and specific bundles of IT capabilities that were the forces that drove strategic measures of performance.
In my writing, I have described this combination of organizational characteristics as the Solid Citizen Effect.(11) The HIT Solid Citizens were those organizations that had strong HIT governance that was focused on investments in business, clinical process improvements through HIT, process improvements highly integrated with their end users’ communities, and CIOs grounded in the level of external market expectations for financial and clinical performance improvement within their local communities.
This brings me back to the meaningful use framework. Meaningful use is an incremental, time-phased approach that is emphasizing the functional/clinical use of the information in the HIT to perform enhanced decision support, with the ultimate focus on improving health outcomes. Bending the health care cost curve is not possible in our economy without the promise of process innovation and associated HIT. There is much purposeful and important effort being provided to the definition of appropriate implementation goals, measures, and targets that relate to mediating the role of HIT in health care delivery. This is a good thing and certainly sounds analogous to another organizational expression of HIT Solid Citizenship.
My concern, however, is that while the actual Solid Citizens will go about the business of investing the organizational characteristics along the lines of some appropriate multiplier against their HIT investment, others will ride the wave of HIT and invest in the technology, not in the requisite complimentary organizational investments. They will not be innovating.
If the past data are any indicator, these hospitals will invest and perhaps invest heavily in the promise of HIT but they will fail to achieve the transformative ROI. They will suffer increasing staff dissatisfaction and increasing management and financial chaos. If they continue investing only in the HIT, their lack of management adaptive capacity to acquire the bundles of capabilities necessary to sustain competitive advantage will likely lead to loss of market, loss of quality staff, and protracted periods of organizational malaise.
And these hospitals will certainly not be contributing to bending the curve of health care costs.
Citations
1) Health and Human Services, Office of the National Coordinator, Health Information Technology, Meaningful Use. http://healthit.hhs.gov/portal/server.pt?open=512&objID=1325&&PageID=16490&mode=2&in_hi_userid=11113&cached=true
2) Brynjolfsson, E. quoted in Buried Treasure? By Simon London, The Financial Times. London: 4. 10 December 2003.
3) London, S. (2003) Buried treasure, The Financial Times Published 10 December 2003.
4) Brynjolfsson, Hitt, and Yang (2002, page 143).
5) Carr, N. (2004) The IT advantage thrown into question, The Financial Times, Published: August 16 2004.
6) Atkinson, B. and Cockerill, T.A.J. (2006) “Information Technology Implementation and Efficiency in the US Hospital Sector 1997-2001: A Production Function Approach”, International Industrial Organization Conference 2006: Competition in Healthcare Markets Track, Boston.
7) Beard, N. Elo, K., Hitt, L. Housman, M, Mansfield, G. (2007) “Information Technology and Hospital Performance: An Econometric Analysis of Cost and Quality” PriceWaterhouseCoopers, TC-02-14, 2007.
8) Eric Brynjolfsson quoted in London, S. (2004) Wringing the changes The Financial Times, Published 28 April 2004.
9) London, S. (2004) Wringing the changes, The Financial Times, Published 28 April 2004.
10) Atkinson, B. (2006) Information Technology and Strategy: The Role of Innovation in Performance in the US Hospital Sector, 1997-2004, University of Durham, British Library Catalogue 013626872, Ethos #430080, DXN101587, 338.47362110285 22.
11) Atkinson, B. (2006, pp178-182, pp202-209).
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Zack Cooper
Serena Vinter
Joanne Kenen