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Looking Towards the Future (page 2)

Why don’t we have an HIT system?

The Failure of the Marketplace OR the Failure of our Health System?

Until recently, the challenge of designing a nationwide HIT system has been left to the private sector.

  • Millions of dollars have been spent on unsuccessful HIT ventures and the solution is still at-large.

Why is this?

One expert on HIT is J.D. Kleinke, the founder and Chief Executive Officer of the non-profit organization the Omnimedix Institute. He points to several reasons why market-based solutions have failed:

  • The business case for an HIT system: A nationwide HIT system would generate enormous public health benefits, through eliminating waste and reducing error. The benefits that we would receive would outweigh the costs of the system, but this question remains:
    • Who should pay the bill to cover design, start-up and operating costs?
  • First-mover disadvantage on building national standards: We still lack national technology standards for HIT. The marketplace is unlikely to design and agree on a set of standards because of something known as first-mover disadvantage.
    • A single insurance company or health IT venture has little incentive to invest the significant capital needed to design the technology for a national system. To do so would be to benefit the company’s competitors, who will not have to invest their own capital.
    • There is also no guarantee that other companies would even use the system.
    • As this blog puts it: We shouldn’t rely on the market to create long-term change. Few investors will choose the option with higher, immediate costs, even if long-term benefits might be in store.
  • Start-up and Operating Costs:
    • With start-up costs estimated at $276 billion over the next ten years, and operating costs of $48 billion per year after that, funding a fully standardized and interoperable HIT system is no trivial matter.
    • Note: Since publishing this article, we’ve discovered that Google and other corporations are already setting up online storage systems for patient records.
    • Google is not charging patients or providers to maintain the records. Patients can access the information via a login/password. If such systems were to become widespread, they could significantly reduce the estimated start-up costs of the system.
  • Competition and Self-Interest
    • Our health system is broken up into pieces with many for-profit players competing for dollars and patients. This does not encourage individual hospitals or providers to make investments in HIT, even if we did have nationwide standards and technology.


  • First, a hospital has little incentive to invest millions of dollars on HIT technology when other hospitals are not required to follow suit. This puts the first hospital at a financial disadvantage.
    • The same is true even more so for individual providers, such as primary care practices. The cost of the HIT technology can be overwhelming for a small practice. There is also no promise that patients will stick around long enough for the cost-savings to benefit the provider.
  • Second, it is not in insurance companies, pharmacies, laboratories or even primary care physicians’ immediate economic self-interest to use such a system.
    • This is because our fee-for-service health care system “…rewards inefficiency, redundancy, excessive treatment, and rework.”
  • For example, laboratories make money by performing tests, so they have no incentive to reduce the number of tests, or retests, done each year.
    • FYI: Roughly 20% of tests done yearly are retests.

One example of a very successful HIT usage is the Veterans’ Administration:

  • The Veterans’ Administration is an incredible example of a health provider that successfully uses an interoperable, standardized HIT system.
  • All of the hospitals within the VA are connected by software called VistA. In addition to electronically storing and transporting medical records, this program allows doctors to conduct nationwide comparisons between individuals with similar physical conditions and diseases.
  • Why does this health provider outshine other hospitals when it comes to HIT?
    • As a non-profit, government-funded provider, the VA is not driven by constant competition with other hospitals. The VA was able to make the decision to invest in HIT because it did not have to worry about out-performing other providers financially on a year-to-year basis. It is also large enough to have significant bargaining power with providers and increased financial wiggle room to invest in other programs like HIT.
    • Patients tend to stick around. Investing in HIT can have long-term savings for hospitals, but only if patients stick around. Otherwise, the costly up-front investment is not recouped by reduced administrative costs over time. Since veterans are universally insured, and they tend to stick with VA hospitals for life, the investment is returned in the long-term.
    • Doctors are paid salaries, not fees. As we showed earlier, our fee-for-service system rewards inefficiency by paying providers for the number of billable services performed, rather than for positive health outcomes. In most hospitals, doctors are paid based on the number of patients seen, for example. Learning how to use an HIT system might reduce the time they can spend seeing patients. This leads to resistance amongst doctors in adopting the new technology. In comparison, the VA hospitals pay doctors salaries based on established criteria. This puts less pressure on doctors to see more patients at the expense of adopting and using an HIT system.

Is there a role for government in creating an HIT system?

Given the failures of the private sector in this area, politicians on both sides of the aisle have come together to support a government role in HIT. In 2004, President Bush signed an Executive Order to develop and put into place a national HIT system by 2014.

In response to this legislation, the Department of Health and Human Services (HHS) created the Office of the National Coordinator (ONC) for Health Information Technology and launched four initiatives to provide support for the adoption and use of HIT.

These initiatives were:

  • The Health Information Technology Standards Panel (HITSP)
  • The Certification Commission for Health Information Technology (CCHIT)
  • The Health Information Privacy and Security Collaboration (HISPC) and
  • Four prototype architectures for a nationwide health information network (NHIN).

The main goal of this effort is to develop standards and look at potential models, rather than to provide grant funding to hospitals or private practices to invest in technology.

It is generally agreed that the initiative is also under funded. Just a few months after Dr. David J. Brailer was selected to direct the ONC, Congress, backed by the Bush administration, eliminated from the budget his $50 million request to fund a demonstration project.

The 2006 budget allocation for HIT was a measly $125 million. In other words, nowhere close to the billions that experts estimate are needed.

Some argue that the government role must go further or the system will never see the light of day. One suggestion is that the government should simply set the technology standards and foot the bill for the entire system, since ultimately we, the taxpayers, would benefit from a reduction in total national health costs.

Bottom Line

A nationwide HIT system could have considerable benefits for us as taxpayers and patients. We currently spend $1.9 trillion per year on health care costs, which is 16% of our national GDP. A fully interoperable system would save at least $77.8 billion a year, which is roughly 5% of our total health care bill.

And that’s just the start: the department of Health and Human Services thinks that HIT could reduce overall health spending by 7-30% through secondary benefits such as improved research capability and increased administrative efficiency.

In the past, market-driven HIT initiatives have failed. We give credit to congressional leaders and President Bush for highlighting this important issue and for taking steps to establish a strong role for the federal government in developing this more efficient, cost-saving system.

At the same time, it is up to us as voters, taxpayers, and health care consumers, to demand a stronger role for the federal government in getting the system up and running.

Rather than just researching and suggesting national standards, the federal government should mandate standards based on best-practice models and the extensive research already conducted in this field. The federal government might also make a greater financial commitment that could help health care players invest in HIT technology through grants and other economic tools.

As Dr. Blackford Middleton, chairman of the Center for Technology Leadership put it, “More aggressive leadership at the national level is needed, and time is of the essence.”


The economic stimulus package being put together by President-elect Obama and Senate Democrats will likely include up to $100 billion for health care spending. While the majority of that sum is expected to go to the states to help pay for Medicaid expenditures, roughly $20 billion will be allocated for HIT updates and investment.

This is a great start, although we should remind readers that Mr. Obama pledged to invest $50 billion total on HIT while campaigning, and ultimately, we should hold him to that promise. Several authors also point out that the HIT money should not be used exclusively to pay for EHRs, but must also go towards creating an interoperable, universal system that can connect both providers and patients with each other and with additional information to assist them in making day-to-day health decisions.

And ultimately, we must remember that implementing a national HIT system will not solve the larger issue of sustainability when it comes to our health system. Health information technology can help us to improve the quality of care delivered and can prevent the sometimes deadly mistakes that come with our reliance on paper charts. At the same time, a fully functional HIT system will only bring modest savings to our total bill, and should be thought of as just one part of a comprehensive reform program.

Note: This article was informed by Maggie Mahar’s 2006 book Money-Driven Medicine, published by Harper Collins.

Article written by Julia Nagle.

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