Reassessing the impact of health IT: Hidden costs and consequences of vendor heterogeneity

The government has invested more than $24.8 billion to incentivize the adoption of health information technology in hospitals; however, there is little evidence showing that these investments produced the expected efficiencies, such as cost savings and improved quality of care. We examine whether vendor heterogeneity can help explain this puzzle. Our results show that the effects of electronic medical record (EMR) adoption on hospital costs and quality vary substantially by vendor. Only certain EMR vendors lead to cost savings (ranging between 3.1% and 4.7%) or quality of care improvements (lowering rates of adverse drug events from 0.38 to 1.68 percentage points) for adopting hospitals, while the adoption of other EMR vendors leads to either cost increases, quality of care reductions, or no significant effects. Our results suggest that both quality improvement and cost savings may be improved by a more strategic choice of vendor. The variability in EMR effectiveness by vendor also implies that there was a hidden cost of the government's program to incentivize the adoption of EMRs in hospitals.