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Wide Use of Health Infotech Could Save $162 Billion a Year, RAND Says

SEPTEMBER 14, 2005 -- Widespread and effective use of interconnected health information technology systems would slice $162 billion a year from the nation's health care bill, says a new study by the RAND Corporation.

The costs of constructing such a system would be relatively low, but the government needs to help ensure it is built and try to eliminate barriers to savings, says the study published in the September/October issue of the policy journal Health Affairs.

A research team led by RAND's Richard Hillestad calculated the average yearly cost to hospitals and doctors of adopting a standardized electronic medical records system over a 15-year period. The cost to hospitals would run $6.5 billion per year for a total of $98 billion over the 15 years. The cost to doctors would average $1.1 billion, or $17.2 billion over the same period.

About 20 percent to 25 percent of U.S. hospitals and 15 percent to 20 percent of U.S. physicians' offices have an electronic medical records system now, the study says.

Computerized systems for ordering medications could prevent 200,000 "adverse drug events" in hospitals and 2 million in doctors' offices and clinics, the study estimates. Savings would total up to $3.5 billion in ambulatory settings and $1 billion a year in hospitals. Medicare would benefit because 60 percent of the hospital savings and 40 percent of the ambulatory care savings would come from fewer medication errors in patients 65 or older.

The study's upper-end estimate of savings from health care IT was $346 billion or more per year based on infotech's impact on other selected industries. But factors needed to generate savings appear to be missing in health care, including strong competition on cost and quality and "a strong champion firm or institution that drives change," the study concludes.

And while the researchers state that the potential savings from moving to an electronic system "would outweigh costs relatively quickly during the adoption cycle," they urge that "the time to act is now" to avoid "lengthy, uneven adoption of nonstandardized, noninteroperable electronic medical records systems."

The study notes that barriers to potential savings include: the costs of buying and running systems, disruptive effects on physician practices during adoption, and a payment system that delivers most of the savings to insurers and patients and most of the costs to hospitals and doctors.

The authors urge that the federal government address such barriers to ensure the development of "interoperability and robust information exchange networks."

The government needs to spur creation of national standards for computer systems and programs to measure, report, and reward high-quality efficient care, the authors state. And they urge government and business to consider targeted subsidies to communities to create regional information networks.

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