Does IT improve revenue management in hospitals?
Study: Does IT improve revenue management in hospitals?
How it was studied:
- While considerable research has examined the effect of IT in healthcare organizations, the focus has been on operating cost, quality, and quantity.
- We also need to explore the impact of IT on the revenue side of the performance equation.
- We examine the question of how the adoption of IT systems influences revenue management in hospitals and posit that IT plays a vital role in enhancing revenue by increasing net patient revenue and decreasing the uncompensated care ratio.
Our empirical analyses use data from two sources: the Healthcare Information and Management Systems Society (HIMSS) Analytics database and hospital level data from the Office of Statewide Health Planning and Development (OSHPD) of California. The HIMSS dataset reports the status and implementation history of health IT for more than 5,300 healthcare providers nationwide (Li, 2014). HIMSS classifies IT applications into several categories. We label these applications as either clinical or business IT based on their purpose or use. Hospital and patient-level financial and nonfinancial data are reported by the OSHPD annually. We exclude specialty hospitals since these hospitals operate substantially differently and are not subject to the same regulations.
The main findings can be summarized in the following points:
- Both clinical and business IT investment have short-term and long-term effects on boosting net patient revenue.
- Clinical IT investment has a short-term contemporaneous effect on reducing the uncompensated care ratio.
- Larger hospitals tend to utilize business IT systems better in facilitating revenue management through both channels over the long run, but not necessarily using clinical IT
- For-profit hospitals outperform their nonprofit counterparts when it comes to managing revenues through clinical IT; however, no interaction effect with business IT was found.
Our study provides several managerial implications for healthcare administrators and hospital decision makers:
- We have found that IT indeed improves hospitals’ revenue management practice. Nevertheless, the management should be aware that IT investment may not pay off immediately.
- Implementing complex clinical applications requires learning and experience. It may take years for them to start creating measurable value; thus, management teams, board members, medical providers, and administrative personnel should be encouraged to exercise patience and tolerance regarding early struggles and complications involving IT implementations.
- Finally, managers should recognize that IT implementations may not deliver the same value for all hospitals. Indeed, our findings indicate that IT implementations will yield the most benefit for larger and for-profit hospitals.