President Obama made information technology a linchpin in his plan to reform health care when he included $19 billion in computerized medical record funding in the $787 billion American Recovery and Reinvestment Act of 2009. The goal: Use technology to reduce costs and improve the quality of care. The reality: Technology could increase health care costs without markedly improving quality, according to experts at Wharton.

Concerns about the cost of health care abound. Automakers — including General Motors prior to its bankruptcy earlier this month — have long complained that health care costs put them at a disadvantage to Asian and European competitors. The U.S. spent $2.4 trillion on health care in 2008, according to the World Health Organization, or about $6,714 per citizen. Those costs are expected to increase at twice the rate of inflation by 2016. According to the Seattle, Wash., consulting firm Milliman, the typical American family of four will spend $16,771 on health care this year, up 7.4% from the 2008 figure of $15,609.

“Everyone is desperate for a way to get a handle on health care costs and increasingly it is becoming a bigger and bigger part of employee compensation. It’s gobbling up wage growth,” explains Kevin Volpp, professor of medicine and health care management at Wharton. “And the infrastructure for delivering health care in this country is surprisingly primitive. It’s shocking.”

Volpp argues that upgrading information technology (IT) for the health care industry is vital. To be sure, an IT upgrade has the potential to allow doctors and hospitals to share critical patient records, give patients the ability to monitor their health, and prevent errors. Advocates and policymakers often argue or assume that the new technology will save money and improve quality. But there are some who are not so certain, especially about IT’s ability to cut costs.

“No one has done the careful research to indicate that if one health care system has information technology and the other doesn’t, then the care is different. There are no controlled trials,” says Mark Pauly, a health care management professor at Wharton. All that technology is no panacea, he warns. In fact, he believes IT could actually raise costs because of culture clashes, training, the implementation of the systems and the labor required to maintain the new technology. “The best-case scenario is that information technology will improve quality but not lower costs. The worst case is that there’s no difference at all.”

That opinion is echoed by other experts at Wharton and the University of Pennsylvania. “The focus on IT in health care is a good thing, but there’s way too much hype about it and misunderstanding about what the benefits will be and how quickly they will come,” says Peter Gabriel, medical director of clinical information systems at the University of Pennsylvania Health System.

Volpp agrees that tracking real cost savings from health care IT is a difficult task, but he expects there to be some benefits from spotting and eliminating redundant care. But those benefits aren’t likely to add up to big savings, says Lawton R. Burns, director of the Wharton Center for Health Management and Economics. “I agree that information technology is important, but it’s not the slam dunk it’s portrayed to be,” he says. The chase to reduce costs, improve quality and expand coverage is deemed the “iron triangle of health care. A lot of us wince [at that goal],” Burns notes. “It’s arguable that we can’t do any of those things well.”

David A. Asch, a Wharton health care management and economics professor, agrees that technology is a big part of reform. “No one is arguing against it, but that doesn’t mean that it’s not oversold,” he says.

Gabriel likens the fascination over IT in health care to a shiny new object that’s easier to focus on relative to more daunting issues. “The cost problem is so huge and related to other things,” he says. “The fundamental problem with cost is the payment structure, which is designed around paying for services. The economics incent [patients] to spend more money, and providers to see more patients and do more procedures. To really save, you have to start rationing care. The reason we’re talking about technology is because the real problems are so hard to solve that no one wants to touch them politically.”

Burns agrees. “At the end of they day, the only thing that can control health care costs is rationing, but no one wants to do that so we nibble around the edges [of the problem].”

‘Reform Cannot Wait’

President Obama argues that health reform has to start somewhere. “I suffer no illusions that this will be an easy process. It will be hard,” he said in February. “The cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: Health care reform cannot wait.”

Indeed, experts at Wharton figure Obama has enough political momentum to make some progress on health care reform because Americans are suffering from increased costs amid a recession. Meanwhile, a bevy of technology companies such as Intel, General Electric, Microsoft and Qualcomm smell an opportunity for new business. New technologies range from electronic medical records that would make it easier for providers to share information, monitoring devices that enable a patient to better track their health, and software to prevent errors.

Meanwhile, physicians say they are open to anything that would make health care transactions more efficient. For instance, Richard Neill, residency director and vice chair at the University of Pennsylvania’s Department of Family Medicine and Community Health, says even the most simple health care transactions require many steps. “If I see a patient Friday and there’s a prescription, I send an electronic fax to a mail order pharmacy to set it up. They fax back their form to fill out. It’s a duel over who uses what form. All of these transactions have costs related to them,” explains Neill. “The health care industry is too fragmented with too many motivations preventing real integration. IT is necessary, but it will not fix what’s in place. Technology can accelerate the bad systems and processes and you can make the same mistakes 100 times faster.”

Neill says that these bloated health care processes appear during every office visit. The simplest health care interaction includes three or four different players: The doctor, the patient, the insurer and the employer. And it gets worse: A simple visit for back pain can escalate the number of players involved if the injury occurred at work and workers’ compensation insurance is involved. “It’s easy to add these up in aggregate and see the pain involved,” he notes.

All of these processes were built up over time and are still followed. “You’re not going to wipe out 140 years of health care development,” says Burns. “Our health care system wasn’t destroyed like Europe’s [after World War II] so we can’t start anew. New policies have to accommodate whatever exists.”

In addition, it’s unclear what cultural issues will emerge as information technology is adopted. These cultural issues are in the forefront of primary care physician relationships. Experts at Wharton and Penn say physicians are generally skeptical of the technology movement. How much will a technology overhaul add to operating costs? How much will it cost to retrain workers? What’s the electronic record learning curve? And what happens when a doctor has a laptop between him and the patient?

“Individual physicians just don’t know where the money is going to come from,” says Pauly. “If IT is tied to reimbursements it could work, but [many] are skeptical.” Burns adds that the physician-patient relationship can also be altered. “Technology adoption changes the way you practice. What happens when your primary care physician is looking at his screen instead of you?”

Gabriel acknowledges such concerns. “These systems have a big learning curve and when physicians move to them, they should see fewer patients that first month,” he says. “It takes about six months for doctors to feel comfortable with new technology.”

The Hard Parts

Technology — not the information kind, but the new medicines, procedures and devices that extend human life — is the most powerful driver of health care cost increases. Hospitals are quick to deploy new health care technologies — often without regard to cost — because doctors and hospitals get paid based on the services they provide. Gabriel says that this cycle provides no incentive for health care providers to scrimp on tests, services and other procedures — even if another doctor recently performed them.

“In health care, one person’s cost is another person’s income,” says Asch. “That creates a problem where the status quo is everyone’s second-best option and no one agrees on the first choice. It’s a paralyzing situation.”

For instance, if a magnetic resonance imaging (MRI) test was conducted at hospital A in the same city as hospital B only a week apart, the second institution is likely to repeat the test. Why? The two hospitals aren’t likely to have systems that can share the information digitally, but even if they did there would be little incentive for hospital B to avoid conducting the same MRI test as the first institution.

Asch says that MRI tests would be repeated for a number of reasons. The second hospital may not trust the reading of the first institution’s radiologist, there may be incomplete information, or the second hospital may worry about the chance that something may have changed. “The utopian vision is where everyone has widespread systems with interoperability,” notes Gabriel. “But that may take years [to happen].”

However, Gabriel adds that there’s also an economic justification for that second MRI test: The second hospital makes money from it. Unless some part of the health care chain says that second MRI tests can’t be conducted, redundant services will occur.

According to Volpp, better information systems could curb such redundancies. For instance, if one doctor had the complete MRI image, he’d be less likely to order a do-over. “A lot of providers wouldn’t order that second scan,” he says. Nevertheless, he agrees that the health care payment model needs to change to one where providers are paid based on outcomes rather than services.

27 Ways to List Gender

Those decisions over whether to repeat a test could be more logical if there were widespread information sharing to track where health care dollars were flowing, say experts at Wharton. To share that information, however, the industry needs to agree on standards. Gabriel says that the University of Pennsylvania Health System alone has 27 different ways to represent “male” and “female” in reports. On some forms, sex is recorded as male or female; on others, M or F; some use 1 or 2; still others opt for x or o, etc. That sort of inconsistent labeling can throw a monkey wrench into the process of information retrieval from a database.

“Now take that problem and multiply it by the universe of clinical diagnoses,” says Gabriel, referring to the varying approaches used by primary care doctors, insurers, the government and hospitals.

Pauly notes that the government definitely plays an important role in developing standards. The Bush administration created the Office of the National Coordinator for Health Information Technology to help coordinate such standards. Obama has continued the effort with more funding. “If Medicare would pay only if you followed a certain standard, everyone would [do so],” Pauly says.

Despite the misgivings about information technology’s impact on the health care industry and the myriad challenges to adopting it, experts at Wharton and Penn say there will be a wide selection of systems to deploy.

Among the notable health care technology efforts:

  • Electronic medical records, which allow doctors to share information about a patient. Unfortunately, these record systems aren’t easily connected with other hospitals. Volpp, however, says that the systems are critical for the health care industry and serve as a precursor to reform efforts.
  • Increased monitoring for — and by — patients to manage chronic diseases. In April, GE and Intel formed an alliance to develop home-based monitoring technologies that will passively transmit vital data such as glucose levels or heart rates to health care providers. Volpp adds that these technologies have to be closely watched for effectiveness. For instance, such home-based devices have potential to improve quality of care, but will they be so expensive that their use would be justified only for high-risk patients? Wireless electronics firm Qualcomm, meanwhile, said it will launch LifeCOMM, a company that will create disease management devices that will allow for wireless monitoring. In addition, Lifescan, a unit of Johnson & Johnson, has created a glucose monitoring system for diabetics that connects to Apple’s iPhone.
  • GE in May said it would spend $3 billion in research and development to launch “at least 100 innovations that lower cost, increase access and improve quality by 15%” by 2015. A big part of GE’s pledge is aimed at accelerating health care information technology adoption.

Experts say these projects are worth the effort, but the industry should keep its expectations in check and closely scrutinize investments. “To the extent [that] these technologies improve the quality of care and get the patient more involved, I’m all for them,” says Neill. “But the technology is not a sea change — just a chance to change.”