PwC Publishes Report on HIT and Hospital Productivity

There have been considerable efforts in the past to study healthcare IT benefits at the macroeconomic level, but research has been hampered by the complexity of healthcare and difficulty disentangling varying factors such as case mix, bed size, for-profit versus not-for-profit status, disproportionate share status, etc., which effect individual hospital performance.


PwC created a sophisticated economic model that accounts for 90 percent of these variances and interrelated key factors such as IT investments and labor costs, capital infrastructure cost, material costs and other inputs and outputs. In addition, PwC created a proprietary IT Capital Index scale to determine each hospital's healthcare IT application mix and the capital value of those applications.

Highlights of PwC's analysis include:

* Overall, hospitals making high levels of IT investments perform at a higher level of efficiency than hospitals with low levels of IT investments; however, hospitals with the lowest levels of investment in IT have lower overall operating costs than hospitals with moderate levels of IT investment.

* Hospitals that are low on the IT Capital Index scale experience increases in total operating expenses as they bring more IT online and until they reach a threshold. Though these greater costs can be explained, hospitals in this situation face a daunting challenge if they must justify IT investments to stakeholders on the basis of near-term payback.

* As hospitals move up the IT Capital Index scale, they showed costs eventually leveled off, which occurs regardless of the added costs of additional IT capital. This suggests that IT capital at some point pays for itself by displacing costs elsewhere in the organization such as improved quality.

* As hospitals move into "high adopter" categories, there is strong evidence IT investments lead to cost-reduction as the organization gains skills in leveraging the technology. To fully realize the value from IT investments, organizations must also redesign clinical and business processes.

Relationship Between IT Capital, Cost and Quality

While PwC's analysis focused primarily on cost efficiency, the model used to analyze business performance metrics also was applied to quality metrics by focusing on a single outcome: hospital mortality rates adjusted for risk, case mix and state averages. The analysis revealed a statistically relevant correlation between hospital IT investment and mortality rates. Significant differences were found between hospitals at the low end versus the high end of PwC's IT Capital Index, and suggest that hospitals investing in IT can reduce mortality rates without a corresponding increase in operating costs.

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