Incentives for medical software adoption

Mickey sent me this post based on a New York Sun article.

Physician behavior and pay incentives, too, are halting the further spread of health information technology. One observer noted that since most physicians are paid based on the number of procedures they perform, computerized records' reduction of unnecessary procedures could slash doctors' revenue.

One government official cited as an example one of America's largest health care providers, Kaiser Permanente, which will complete the switch to electronic records for its 8 million patients later this year.

Since Kaiser takes capitated risk it has the incentives properly aligned to maximize profit by keeping someone healthy instead of spending a lot of money on procedures, consults and tests. Conventional insurers have similar incentives but their ability to influence the practitioners to adopt software to reduce medical waste is less direct and exclusive. Hopefully the switch at Kaiser will go well and smooth the way for other doctors whose incentives are not as well aligned.

Early in the article, which includes an interview with national coordinator for health information technology David Brailer, a vision of a huge EHR ROI is floated:

President Bush is readying a major push to computerize the nation's medical records, including what is expected to be between $100 million and $200 million in funding for the program in the federal budget he will propose next month.

Advocates say electronic medical records could save $140 billion a year in health care expenses on things like file clerks and space for file cabinets, while also saving tens of thousands of lives each year by reducing medical errors.

If there were an ROI this good it would happen without getting the incentives right, but in the real world it is important to get the incentives right.

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I mainly agree with Mickey, but will add a few points:

• Some of the reduction in unnecessary procedures doesn't hurt the physician financially. For example, the financial loss from reductions in duplicate lab tests is borne by the labs
• EHRs allow physicians to do better charge capture to obtain higher reimbursement
• Increasing efficiency, if it happens (a big if) can allow busier doctors to expand their panel of patients and make more money