The Spillover Effects of Health IT Investments on Regional Health Care Costs

Electronic health records (EHR) are often presumed to reduce the significant and accelerating health care costs in the US. However, evidence on the relationship between EHR adoption and costs is mixed, leading to skepticism about the effectiveness of EHR in decreasing costs. We argue that simply looking at the hospital-level effects can be misleading because the benefits of EHR can go beyond the adopting hospital as they can create regional spillovers via information and patient sharing. When patients move between hospitals, timely and high quality records received at one hospital can affect the costs of care at another hospital. We provide evidence that although EHR adoption increases the costs of the adopting hospital, it has significant spillover effects by reducing the costs of neighboring hospitals. We further show that these spillovers are linked to information and patient sharing. Specifically, the spillovers are stronger when more hospitals in the region are in health information exchange (HIE) networks and in the same integrated delivery systems (IDS), which can share information more easily. Furthermore, utilizing regional characteristics that can affect the extent of patient sharing such as urban vs. rural areas, population density, average distance between hospitals, and hospital density, we find that locations with higher patient and hospital concentration experience stronger regional spillovers. Overall, our findings provide evidence that information and patient sharing are related to regional EHR spillovers and suggest that we need to take into account such externalities to understand the benefits of health IT investments and form policy decisions