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HIEs Could Help Cut Billions in Medicare Spending, New Research Finds

September 18, 2017
by Rajiv Leventhal
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Health information exchanges (HIEs) have the potential to cut billions in Medicare spending, particularly in those healthcare markets that have established HIE infrastructures, according to new research.

“HIEs, which are typically nonprofit technology companies that make it possible for hospitals and health providers to share medical data, are beginning to show their promised value to the healthcare system,” according to the authors of the recent research, titled, "Reducing Medicare spending through electronic health information exchange: The role of incentives and exchange maturity." The research, forthcoming in Information Systems Research, is from Idris Adjerid, Ph.D., and Corey Angst, Ph.D., IT professors in Notre Dame's Mendoza College of Business, and Julia Adler-Milstein, Ph.D., of the University of California San Francisco.

Indeed, spending on entitlement programs like Medicare and Medicaid consumes some two-thirds of all federal spending, but this new research shows that IT investments in healthcare could potentially lead to billions of dollars in savings. The researchers noted that many HIEs were created because hospitals needed better ways to exchange medical data, as photocopying, mailing and faxing records were inefficient. The research shows that when HIEs appear in regional markets, there are massive cost savings.

The researchers collected annual data from a seven-year period (2003 through 2009) to compare average Medicare spending per beneficiary (adjusted for regional variation in age, race and gender) in healthcare markets with an operational HIE relative to those without an operational HIE. They analyzed these data using advanced econometric models that accounted for factors such as healthcare delivery infrastructure, regional hospital quality, health IT adoption, patient demographics and economic factors.

"We find significant spending reductions in healthcare markets that have established operational HIEs, with an average savings of $139 per Medicare beneficiary per year (1.4 percent decrease),” Adjerid said. “This equals a $3.12 billion annual reduction in spending if HIEs were to be implemented nationally in 2015 (the most recent year complete Medicare spending data was available)."

Adjerid continued, “Not all healthcare markets see the same amount of reduced spending from HIEs. We find that spending reductions are greater in healthcare markets where providers have financial incentives to use an HIE in ways that reduce spending. We also find that more mature HIEs—those that have been around longer—are more effective at reducing costs."

Uncertainty surrounding the value of HIEs has thus far led to mostly unenthusiastic support for these technologies. But now this new research could impact the policy and healthcare debate. "We realize the HIE model is not static—new vendor-driven models are emerging as market dynamics change. What we show is that the ability to electronically exchange medical data can result in savings in the overall health system, which should encourage new models of exchange," Angst says.

Also recently, researchers from the Brookings Institution, SUNY Buffalo and the University of Connecticut published a paper on how HIEs reduce redundant medical procedures—an important takeaway given that the Congressional Budget Office estimates the cost of procedures that did not improve health outcomes at $700 billion per year. Given these results, the study’s authors estimated that had all the physicians in the U.S. been using HIE, Medicare would have saved $63 million annually for each therapeutic procedure performed at physicians’ offices.

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