Health IT: Big Costs, Big Savings

The consulting firm McKinsey & Co. has identified three characteristics of successful health IT rollouts that will allow capable users of electronic health records to capture $40 billion in annual savings.

To realize the greatest return on investment, assert authors of an August journal entry in the McKinsey Quarterly, hospitals must rethink approaches to governance and change management; radically simplify IT architecture; and take a methodical approach to the planning and execution of large-scale IT rollouts.

The cost to implement new health IT at U.S. hospitals will average $80,000 to $100,000 per bed or $120 billion nationwide, estimates McKinsey. Federal incentives will offset 15 to 20 percent of those costs, making the timely recovery of IT investments imperative, the writers said.

When implementation is done well, "the productivity and resource savings often pay back the initial IT investment within two to four years while also producing better health outcomes for patients," said McKinsey.

Its consultants cited the case study of a regional health care provider in Canada that spent $100 million to implement electronic health records and related IT systems in four hospitals. The technology resulted in labor savings, fewer duplicated lab tests and a reduction in adverse drug events that have resulted in annual savings of $100 million. The hospital was able to treat 20 percent more patients without adding personnel or reducing quality of care.

By comparison, a midsize acute-care hospital in the United States eschewed taking a phased approach. Eager to improve remote access to data, reduce adverse drug events and improve overall safety, the hospital took an approach to implementation that resembled a full-court press. Management "forged ahead on multiple fronts," resulting in system gaps that didn't reduce adverse drug effects but increased them.

The $40 billion in projected annual savings generated by IT implementations is "much more than the estimated $27 billion the federal government will spend on Medicare and Medicaid incentives for EMRs," notes FierceHealthIT. But as McKinsey warns, those savings are predicated in well-managed implementations.

It's all about execution.