Does electronic health record use improve hospital financial performance? Evidence from panel data

Purpose: The aim of this study was to examine the impact of electronic health record (EHR) adoption on hospital financial performance. Methodology/Approach: We constructed a longitudinal panel using data from the three secondary sources: (a) the 2007-2010 American Hospital Association (AHA) Annual Survey, (b) the 2007-2010 AHA Annual Survey Information Technology Supplement, and (c) the 2007-2011 Medicare Cost Reports from Centers for Medicare and Medicaid Services. Because potential financial benefits attributable to EHR adoption may take some time to accrue, we ran regressions with lags of 1 and 2 years that included hospital and year fixed effects to examine the relationship between the level of EHR adoption and three hospital financial performance measures. Findings: A change in the level of EHR adoption was not associated with changes in operating margin or return on assets within hospitals. However, total margin was significantly improved, after 2 years, in hospitals that moved from no EHR to having a comprehensive EHR in all areas of their hospital ( = 0.030, p < .034). On the other hand, hospitals that increased their level of EHR adoption but did not achieve hospital-wide comprehensive adoption did not experience changes in any financial performance measures examined. Practice Implications: The improvements in total margin, as opposed to operating margin, are likely due to hospital incentive payments under the Health Information Technology for Economic and Clinical Health Act that are reflected in nonpatient revenues and therefore show up in total margin calculations. Thus, after 2 years of EHR adoption, hospital financial performance is observed to improve based only on meaningful use incentive payments. More research will be needed to determine whether EHR adoption impacts financial performance on a longer time horizon.