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The Trillion Dollar Conundrum: Complementarities and Health Information Technology

  • David Dranove
  • Christopher Forman
  • Avi Goldfarb
  • Shane Greenstein

We examine the relationship between the adoption of EMR and hospital operating costs. We first identify a puzzle that has been seen in prior studies: Adoption of EMR is associated with a slight cost increase. We draw on the literature on IT and productivity to demonstrate that the average effect masks important differences across time, locations, and hospitals. We find: (1) EMR adoption is initially associated with higher costs; (2) At hospitals with access to complementary inputs, EMR adoption leads to a cost decrease after three years; (3) Hospitals in unfavorable conditions experience increased costs even after six years.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18281.

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Date of creation: Aug 2012
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Publication status: published as David Dranove & Chris Forman & Avi Goldfarb & Shane Greenstein, 2014. "The Trillion Dollar Conundrum: Complementarities and Health Information Technology," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 239-70, November.
Handle: RePEc:nbr:nberwo:18281
Note: IO PR
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  1. Dranove, David & Lindrooth, Richard, 2003. "Hospital consolidation and costs: another look at the evidence," Journal of Health Economics, Elsevier, vol. 22(6), pages 983-997, November.
  2. Amalia R. Miller & Catherine E. Tucker, 2011. "Can Health Care Information Technology Save Babies?," Journal of Political Economy, University of Chicago Press, vol. 119(2), pages 289 - 324.
  3. Catherine Tucker & Amalia Miller, 2007. "Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records," Working Papers 07-16, NET Institute, revised Sep 2007.
  4. Chris Forman & Avi Goldfarb & Shane Greenstein, 2008. "Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 295-316, 06.
  5. Vernon Henderson, 2001. "Marshall's Scale Economies," Working Papers 01-17, Center for Economic Studies, U.S. Census Bureau.
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  9. Susan Athey & Scott Stern, 2002. "The Impact of Information Technology on Emergency Health Care Outcomes," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 399-432, Autumn.
  10. Jack E. Triplett, 1999. "The Solow productivity paradox: what do computers do to productivity?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 309-334, April.
  11. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2005. "Productivity, Volume 3: Information Technology and the American Growth Resurgence," MIT Press Books, The MIT Press, edition 1, volume 3, number 0262101114, June.
  12. Thomas N. Hubbard, 2003. "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," American Economic Review, American Economic Association, vol. 93(4), pages 1328-1353, September.
  13. Greenstein, Shane & McDevitt, Ryan C., 2011. "The broadband bonus: Estimating broadband Internet's economic value," Telecommunications Policy, Elsevier, vol. 35(7), pages 617-632, August.
  14. Erik Brynjolfsson & Lorin M. Hitt, 2003. "Computing Productivity: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 793-808, November.
  15. Forman, Chris & Goldfarb, Avi & Greenstein, Shane, 2005. "How did location affect adoption of the commercial Internet? Global village vs. urban leadership," Journal of Urban Economics, Elsevier, vol. 58(3), pages 389-420, November.
  16. Ron Borzekowski, 2002. "Measuring the cost impact of hospital information systems: 1987-1994," Finance and Economics Discussion Series 2002-42, Board of Governors of the Federal Reserve System (U.S.).
  17. Chris Forman & Avi Goldfarb & Shane Greenstein, 2012. "The Internet and Local Wages: A Puzzle," American Economic Review, American Economic Association, vol. 102(1), pages 556-75, February.
  18. Casey Ichniowski & Kathryn Shaw, 2003. "Beyond Incentive Pay: Insiders' Estimates of the Value of Complementary Human Resource Management Practices," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 155-180, Winter.
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