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The Trillion Dollar Conundrum: Complementarities and Health Information Technology

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

Abstract

We examine the heterogeneous relationship between the adoption of EMR and hospital operating costs at thousands of US hospitals between 1996 and 2009. We first document a previously-identified puzzle: Adoption of EMR is associated with a slight cost increase. Drawing on the literature on IT and productivity, we analyze why this average effect arises. We find that: (i) EMR adoption is initially associated with a rise in costs; (ii) EMR adoption at hospitals in IT-intensive locations leads to a decrease in costs after three years; and (iii) Hospitals in other locations experience an increase in costs even after six years.

Suggested Citation

  • 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 239-270, November.
    • Handle: RePEc:aea:aejpol:v:6:y:2014:i:4:p:239-70
    Note: DOI: 10.1257/pol.6.4.239
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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