Congressional Budget Office Issues Landmark Report on Costs and Benefits of Health Information Technology

On Tuesday, May 20, the Congressional Budget Office (CBO) released its long-awaited report on health IT, providing some context and few answers while raising a whole host of new questions about the future of CBO’s scoring methodology regarding health IT.  As the federal office that estimates the financial impact of proposed legislation, its “scores,” or cost estimations, have a significant impact on the fate of health IT bills. 

The report broadly concludes that health IT “has the potential to significantly increase the efficiency of the health sector by helping providers manage information. It could also improve the quality of health care, and, ultimately, the outcomes of that care for patients.” 

What follows in the report, though, is a series of caveats laying out CBO’s skepticism about the ability of HIT to act as a panacea for the ailments of American health care.  First and foremost, the CBO clarifies that it views HIT as a means, not an end, stating that “health IT appears to make it easier to reduce spending if other steps in the broader health care system are also taken to alter incentives to promote savings. By itself, [HIT] is generally not sufficient to produce significant cost savings.”

The following bullets summarize key points made by the CBO in its’ report.

Pros:
  
    –HIT could have a huge impact on establishing comparative effectiveness of treatments and 
      practices
    –HIT creates potential for internal and external savings
    –When used properly, EHRs can enable more efficient care delivery|
    –If combined with broader health care reform, HIT could become an important value-adding tool

Cons:

    –High cost of adoption leads HIT to be utilized primarily by large practices and health systems
    –HIT will not produce significant savings across the board without broader health care reforms
    –Smaller providers will likely lose money in the short term when adopting HIT
    –No study has yet laid out “likely” savings and costs of widespread HIT adoption, only an optimistic 
     "potential” (RAND and CITL), according to CBO. Many discussions of benefits of HIT are based on 
      biased or limited empirical evidence

The CBO report, depending on how it is received in the legislative and policy communities, could have a significant impact on efforts to promote HIT as a cost-savings tool.  The report, while supporting HIT in theory, raises many questions about adoption in reality. 

The CBO report highlights the need for more cohesive research that examines the costs and benefits of HIT adoption to provide a counterpoint to CBO’s assertion that existing estimates on the benefits of HIT adoption are not “an appropriate guide to the budgetary effects of legislative proposals aimed at increasing the use of health IT … the bottom line is that both studies [RAND and CITL] appear to significantly overstate the savings for the health care system as a whole—and by extension, for the federal budget.”  The report is particularly concerned that such savings would likely accrue outside of Medicare and Medicaid, leading to decreased benefit for the federal government as its budget becomes increasingly dominated by health care costs.

Financial Incentives
The CBO’s most significant statement on financial incentives, which could affect its scoring of any HIT legislation in coming years, is as follows: “If the federal government chose to intervene directly to promote the use of health IT, it could do so by subsidizing that use or by imposing a penalty for failing to use a health IT system.  From a budgetary perspective, the subsidization approach is less likely than a penalty to generate cost savings for the federal government because of the costs of the subsidies.”

The CBO takes a more positive view of mandating HIT adoption, concluding that it “would probably induce nearly all providers to adopt it at a small cost to the government, and might produce net savings in health care spending … if policymakers are interested in promoting health IT, some version of a requirement or an explicit or implicit penalty for providers who fail to adopt health IT is likely to be more cost-effective for the federal government than a subsidy.”  However, many stakeholders have expressed concerns about a mandate-based approach in response to legislation (the E-MEDS bill) which employs the technique.

Need for Broader Reform
The CBO is very clear that HIT’s greatest benefits will come in conjunction with reforms that alter the broader infrastructure of health care in the U.S.  The current system, according to CBO, fails to provide financial incentives to encourage greater efficiency and quality, and in fact often works better at incentivizing quantity of services provided, rather than quality.  The issue of what reforms should occur is outside the scope of the report, but clearly informs much of the CBO’s thinking – HIT can be a great good for the U.S., but it needs to be part of a broader movement for health care reform, according to CBO.

eHI will continue to follow the repercussions that follow this report, because in the current fiscal environment, and with the strict pay-go budget rules in place, the fate of any piece of legislation is often determined by how the CBO tabulates the bill‘s costs or expected savings. 

The CBO report in its entirety can be downloaded at http://cbo.gov/doc.cfm?index=9168.