Financial Position and Adoption of Electronic Health Records: A Longitudinal Perspective

Jay Shen, Ph.D. Greg Ginn, Ph.D. Department of Health Care Administration and Policy School of Community Health Science University of Nevada 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Background The national initiative to implement health information technology in healthcare organizations including hospitals aims to improve the performance of hospitals with regard to cost and quality Only a small percentage of hospitals have adopted them This low rate of adoption is attributed in large part to financial barriers Limited research has studied financial factors. 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Literature Review Wang et al. (2005) examine profitability and liquidity ratios measured by government payer mix, return on assets, operating margin, cash flow per bed, days cash on hand per bed, and total operating revenue. They found that operating revenue is positively associated with health information systems adoption. It is noted that asset turnover and leverage ratios were not included in the study. 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Literature Review Kazley & Ozcan (2007) found that EHR adoption is significantly associated with environmental uncertainty, type of system affiliation, size, and urban location. However, the effects of competition, munificence, ownership, teaching status, public payer mix, and operating margin were not significant. It is noted that liquidity, asset turnover, and leverage ratios were not included in the study. 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Literature Review Menachemi, et al. (2006) take a different approach by making financial ratios the dependent variable and EHR adoption as the independent variable. They found that outsourcing of IT functions did not correlate with net inpatient revenue, net patient revenue, hospital expenses, total expenses, cash flow ratio, operating margin, or total margin. It is noted that asset turnover and leverage ratios were not included in the study. 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Literature Review Ginn, Shen, and Moseley (2011) comprehensively examined five financial ratios: (1) net days revenue in accounts receivable, (2) total margin, (3) the equity multiplier, (4) total asset turnover, and (5) the ratio of total payroll to total expenses. We found that only liquidity was significant and nonlinearly associated with EHR adoption. Asset turnover ratio was negatively associated with EHR adoption. 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Research Question Sine all existing studies were cross-sectional and only focused on current financial positions and EHR adoption, we would like to ask: Are hospitals financial position in previous years associated with the current level of electronic health records (EHRs) adoption? 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Design: a retrospective longitudinal study Data: extracted from The 2009 American Hospital Association electronic health record implementation survey The 2006 CMS Cost Reports and 2006 AHA Annual Survey: approximating mid-term planning The 2002 CMS Cost Reports and 2006 AHA Annual Survey: approximating long-term planning Final sample: 2,701 acute care hospitals in the United States 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Dependent variable: Level of EHR adoption: AHA EHR biannual survey, (Jha et al., 2009) Comprehensive EHR system 1) 24 electronic functions present in all major clinical units Basic EHR system 2) 8 electronic functions present in all major clinical units Below basic EHR system3) None of the above 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Examples of 24 electronic functions Electronic Clinical Documentation Physician notes Discharge summaries Results Viewing Laboratory reports Computerized Provider Order Entry Radiology tests Nursing Orders Decision Support Drug allergy alerts 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Independent variables: five financial ratios Net days revenue in accounts receivable: liquidity Total asset turnover: asset management Total margin: profitability Equity multiplier: leverage Total payroll to total expenses ratio: human resource intensity 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Independent variable:5 Financial ratios (Pink et al., 2005) Net days revenue in accounts receivable= (Accounts receivable - allowances for bad debts)/ (net patient revenue/365) Total asset turnover =Total revenue/total assets Total margin =Net income /(net patient revenue + other revenue) Equity multiplier =Total assets/fund balance Total payroll to total expenses ratio =Total salary expenses/total expenses 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Control variables Bed size Ownership type Teaching hospital affiliation System membership Network participation The number of full-time equivalent nurses per adjusted average daily census Percentages of Medicare patients and Medicaid patients Having capitation-based reimbursement Herfindahl-Hirschmann index 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Methods Analytical techniques General ordinal logistic regression 5 independent variables converted to quartiles The 1 st quartile as the reference STATA 11 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Results 2006 financial indicators and 2009 level of EHR adoption Total asset turnover: - Total margin: + Net days revenue in accounts receivable: NS Equity multiplier: NS Total payroll to total expenses ratio: NS 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Results Total number of hospitals in the sample: 2,701 Level of EHR adoption by 2009 Comprehensive EHR system 98 hospitals (3.6%) Basic EHR system 418 hospitals (15.5%) Non-basic EHR system 2,185 hospitals (80.9%) 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Results 2002 financial indicators and 2009 level of EHR adoption Net days revenue in accounts receivable: non- linear (2 nd quartile higher than other quartiles), significant Total asset turnover: - Total margin: + Equity multiplier: non-linear, significant Total payroll to total expenses ratio: NS 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Results Significant control variables (in both 2002 and 2006) for the 2009 level of EHR adoption Number of FTE nurses per adjusted average daily census: + Bed size or teaching hospital : + Medicare or Medicaid patients percentage: - Investor owned (for-profit) hospitals: - 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Discussion As expected, the highest quartile of total margin in previous years was positively associated with the current level of EHR adoption. It does seem reasonable that hospitals with the greatest profitability would be more comfortable planning for a major investment in health information technology This financial indicator was not significant in our prior cross-sectional study 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Discussion Higher quartiles of total asset turnover in previous years were negatively associated with the current level of EHR. Although it seems that hospitals with higher asset turnover would be more able to afford EHR adoption, it is also true that the smaller hospitals would have fewer assets and therefore higher asset turnover rates. Since it is the larger hospitals with disproportionately more assets that tend to adopt EHRs first, it does make sense that total asset turnover would be negatively associated with EHR adoption. Alternatively, it might be that some hospitals with high total asset turnover are this way as a result of low asset book values due to that they have comparatively old facilities. Thus, these hospitals with high total asset turnover rates may have more pressing investment needs than adopting EHRs. Consistent with the results of our prior cross-sectional study 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Discussion As the net days revenue in accounts receivable increased in the second quartile, hospitals were significantly less likely to achieve the current level of EHR adoption. This makes sense in that hospitals in the lowest quartile might be there because they simply are not generating enough revenue, and hospitals in the third and fourth quartiles might have inefficient collection policies. Thus, hospitals in the second quartile might be the most liquid and therefore more inclined to make the decision to adopt EHRs Consistent with our prior cross-sectional study 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Discussion As for the equity multiplier, hospitals in the second and third quartiles became less likely to adopt EHRs. This makes sense in that hospitals that are more highly leveraged might be more reluctant to make a significant investment in EHR adoption Not significant in our prior cross-sectional study 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Conclusions The financial position is associated with adoption of EHRs, especially the financial position several years prior to the decision. EHR adoption is in large part a strategic decision that hospitals take to better align themselves with their environment Health care executives need to make great efforts for mid- and long-term financial planning in order to successfully achieve a high level of EHR adoption 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Limitations Selections of financial ratios of three years and seven years than the current EHR adoption were somehow arbitrary because the data we use did not provide the exact date when the hospital EHR systems were in place. Our focus was to see, given the current level of EHR adoption, what were the hospitals financial positions three and seven years ago. Some hospitals were left out of the study due to missing provider numbers, extreme outliers, or questionable financial data, it might discount our findings generalizability Due to too many missing values, some variables, such as adjusted daily census per staffed bed, were not used 2/20/2012 HIMSS Annual Conference, Las Vegas, NV

Thank You! Questions? 2/20/2012 HIMSS Annual Conference, Las Vegas, NV