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5/23/2011
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Health IT Boosts Bottom Line For Hospitals

The Fitch Ratings analysis suggests that better informatics and adherence to quality standards really do drive the bottom line.

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Hospitals with advanced health information technology systems and a high quality of care achieve greater revenue growth, attend to more patients, enjoy a superior reputation for excellence, and are better able to contain costs, a report from Fitch Ratings has revealed.

As hospitals accelerate the adoption of electronic health records, computerized physician order entry systems, electronic prescription technology, and other health IT, the findings give greater currency to the Obama administration's claim that its health IT incentive programs are worthwhile and will have a positive impact on improving the quality of care while containing healthcare costs.

The special healthcare report, Enhanced Accountability and Financial Performance noted that as health reforms accelerate the adoption of quality reporting and health IT investments, it's important to analyze the impact of these two drivers on hospital operations.

To do this, the Fitch Ratings selected 291 hospitals in its portfolio and divided them into groups--75 hospitals (25.8%) were deemed excellent in quality of care, 24 hospitals (8.2%) were designated as having an advanced IT infrastructure (a HIMSS Stage 6 or Stage 7 hospital), and 12 hospitals were listed as excelling in both technology and quality (the IT&Q hospitals). The hospital groups were compared with the averages of all other hospitals in Fitch's portfolio.

By reviewing financial statements and other relevant data from between 2005 to 2009, Fitch said its goal was to determine whether investments in advanced IT and the drive to improved clinical quality measures had a quantifiable impact on a hospital's operating performance.

"Based on Fitch's analysis, it appears that advanced information systems make the largest contribution to cost control. The differential in annual growth rates between total revenues and total expenses was greatest among the technology-savvy and IT&Q hospitals, with revenues outpacing expenses 1.3% per year at the technology hospitals," the report said. "The power of the combination of quality improvement and information systems is apparent with the IT&Q hospitals, where annual revenue growth outpaced expense growth by 1.8%, compared with 1.3% at the technology hospitals and 0.2% to 0.3% at the portfolio and quality hospitals."

According to the report, the benefits of quality and IT become increasingly apparent in reviewing both the growth rates and absolute levels of operating profitability and cash flow, using earnings before interest, taxes, depreciation, and amortization (EBITDA) as a proxy.

"Both operating margins and cash flow grew at faster rates within the quality, technology, and IT&Q groups than within the portfolio hospitals. In fact, the portfolio hospitals had negative growth rates for both operating margin and cash flow between 2005 and 2009 relative to positive growth rates within the technology and IT&Q hospitals. Absolute profitability, measured in terms of operating margin and EBITDA margin, was also greater within the quality, technology, and IT&Q hospitals than within the portfolio hospitals," the report said.

The investigation also found a correlation between the size of a hospitals' revenues and unrestricted cash and investments and achievements in both quality and IT infrastructure. Among the findings:

-- The average total revenue of the high quality hospitals was 30% greater than that of the portfolio hospitals in 2009, while total revenues for the technology hospitals were 46% greater than the portfolio hospital sample. The 12 hospitals that were listed as both technology and quality hospitals (the IT&Q hospitals) had an average total revenue that was 76% greater than that of the portfolio hospitals.

-- Both the quality hospitals' and technology hospitals' average unrestricted cash and investments were approximately 30% greater than that of the portfolio hospitals. The average unrestricted cash and investments at the IT&Q hospitals was 59% greater than that of the portfolio hospitals.

-- Between 2005 and 2009, admissions at the portfolio hospitals decreased an average of 1.4% per year. By comparison, among the quality hospitals and technology hospitals, admissions increased an average of 0.5% and 4.7% per year, respectively. Admissions at the IT&Q hospitals increased 4.4% per year, which translates to higher growth rates as more patients choose providers based on quality indicators as well as other factors such as reputation, service area characteristics, service mix, and payer mix.

-- The portfolio hospitals experienced the lowest average annual growth rate between 2005 and 2009, increasing an average 7.5% annually. Net patient revenue at the quality hospitals rose at a slightly higher growth rate of 8.5% per year, while the technology and IT&Q hospitals increased 13.2% and 12.7% per year, respectively.

-- Average length of stay at the portfolio hospitals increased an average 0.1% per year, while decreasing 0.4% and 1.0% per year at the quality and technology hospitals, respectively. The IT&Q hospitals had the largest decrease in average length of stay, at 1.8%.

In assessing its findings, the report noted that investments in advanced IT systems and quality improvement programs "seem to have a measurable impact on bending the cost curve."

The report went on to say: "Fitch believes healthcare providers are beginning to be able to more accurately measure the benefits of their investment in clinical IT and quality improvement programs on clinical outcomes and operating efficiencies and costs. Properly structured incentive systems, greater accountability, and increased transparency within the healthcare system have the potential to harness the power of advancements in IT and quality reporting to achieve the goals of healthcare reform."

The Healthcare IT Leadership Forum is a day-long venue where senior IT leaders in healthcare come together to discuss how they're using technology to improve clinical care. It happens in New York City on July 12. Find out more.

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