Are Electronic Health Records Cost Effective?

It depends on who you ask.

In the private market without health insurance, the answer is maybe.  Do patients value the ability for physicians (and hospitals) to rapidly review their records more than it cost the physician to install them?  If so, then they would be cost-effective as physicians could cover their cost by charging higher prices or increasing their market share.  For some physician groups, electronic health records (EHR) would not be cost effective.  For instance, small physician practices may not be able to increase prices sufficiently to cover the cost of EHR due to their smaller patient base; older physicians with a more established patient base would have fewer years left of working to recoup their investment.

In the world of insurance, however, EHR are almost certainly cost-effective for providers, but are likely to significantly raise costs for patients and insurers.  Dr. Richard Amerling cites a New York Times article that shows that “…when hospital emergency rooms and physician practices adopt electronic health records, reimbursements for physician services goes way up…It seems doctors and hospitals are able to use the EHR to ‘enhance’ documentation of patient encounters and services provided, which entitles them to ‘up-code’ and receive higher reimbursement from third party payers.”

Insurers may be able to adjust prices to compensate for the up-coding practices, but there will likely be a lag in these adjustments.  Thus, providers can use EMRs to make rents in the short-run from upcoding. Large group practices will be best at upcoding because the fixed cost of training physicians to upcode or buying EHR systems that facilitate upcoding can be spread across more physicians.  Thus, the cost per physician to institute EHRs that upcode is much lower for large physician practices than small physician practices.

EHRs may improve the quality of care, but they are likely to increase healthcare costs.