Health and Human Services' Estimate of Health Care Cost Savings Resulting from the Use of Information Technology

GAO-05-309R: Published: Feb 17, 2005. Publicly Released: Feb 17, 2005.

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David A. Powner
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According to the Institute of Medicine and others, the U.S. health care delivery system is an information-intensive industry that is complex, inefficient, and highly fragmented, with estimated spending of $1.7 trillion in 2003. The Institute of Medicine has called for transformational change in the health care industry through the use of health information technology (IT) to improve the efficiency and quality of medical care. As a regulator, purchaser, health care provider, and sponsor of research, the Department of Health and Human Services (HHS) has also been working over the years to promote the use of IT in public and private health care settings. We are currently working to provide Congress with an overview of HHS's efforts to develop a national health IT strategy, identify lessons learned from the Departments of Veterans Affairs and Defense regarding their use of electronic health records (EHR), and identify lessons learned from international efforts to modernize national health IT infrastructures. As part of this ongoing work, Congress asked us to review how a recent HHS estimate of cost savings from the adoption of IT was derived and what portion of these savings are projected for the federal government.

According to the National Coordinator for Health IT, HHS's initial estimate of potential nationwide savings resulting from the adoption of health IT is based primarily on two studies conducted by the Center for Information Technology Leadership (CITL). One of the CITL studies identified $78 billion in annual savings, while the other study estimated $44 billion from the widespread implementation of IT used in ambulatory care settings. Both studies estimated savings based on the use of models to project the value of net cost savings from the adoption of IT and incorporated information from published studies, expert panels, and market research. However, CITL and other health care experts acknowledge that these estimates are based on a number of assumptions and inhibited by limited data and therefore are not necessarily complete and precise. Although HHS had originally given us estimated annual federal savings of $30 billion associated with the Medicare program, in its comments HHS stated that it is unable to reliably quantify savings. HHS also stated that it is actively working to determine what the savings will be and expects them to be substantial. Although the available data make estimating cost savings difficult, according to HHS Medicare would likely save a proportionate amount from reduced utilization of services for Medicare-funded office visits (because the program uses volume-based payments for ambulatory and inpatient care) and from reduced use of medications given inappropriately or unnecessarily.

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