Peter A. Gross has been a doctor for 40 years, rising up the ranks to become the chairman of internal medicine at Hackensack University Medical Center in Hackensack, N.J. But one day this winter, a homeless man checked in to the hospital with HIV, and Gross made a decision that could have seriously harmed his patient. He chose to give the patient an HIV drug, tapping a request into a hospital computer and zapping it off to the two-year-old digital drug-order entry system. Moments later he got back a message he never would have received before the system was in place: a warning that the drug could mix dangerously with an antidepressant the patient was already taking. Gross got on the phone to figure out the problem, eventually asking the man's psychiatrist to reduce the dosage of his antidepressant. "There's no way I would have picked that up," Gross says. "It was totally unexpected."
Scenes like this are unfolding across the country, providing a glimpse into the potential of information technology to transform the health-care industry. Hackensack is one of the nation's most aggressive tech adopters. Millions of dollars in investments have paid for projects well beyond the online drug system that tipped off Gross. Doctors can tap an internal Web site to examine X-rays from a PC anywhere. Patients can use 37-inch plasma TVs in their rooms to surf the Net for information about their medical conditions. There's even a life-size robot, Mr. Rounder, that doctors can control from their laptops at home. They direct the digital doc, complete with white lab coat and stethoscope, into hospital rooms and use two-way video to discuss patients' conditions.
Whimsical? Maybe, but Hackensack's results are perfectly serious. Patient mortality rates are down. Quality of care is up. At the same time, productivity is rising. While these are early days and plenty of hurdles remain, the hospital has no doubts that its technology investments are making the difference. "We could never become a top hospital unless we were tops in tech," says John P. Ferguson, the hospital's chief executive.
Is this the health-care industry's future? It would be a startling reversal. For years health care has missed out on the huge benefits that information technology has bestowed upon the rest of the economy. Hospitals were not only cheapskates when it came to investing in computers and Web technologies but also had a knack for wasting the money they did spend. During the 1990s, productivity in health-care services declined, according to estimates from Economy.com Inc. That's a huge underachievement in a decade of strong gains for the overall economy.
All of that may be beginning to change. Hospitals such as Hackensack, along with insurers and the government, are stepping up their investments in technology. For hospitals, there's more motivation than ever: The government and private insurers are beginning to pay hospitals more for higher-quality care -- and the only way to measure quality, and then improve it, is with more information technology. Hospital spending on such gear is expected to climb to $30.5 billion next year, from $25.8 billion in 2004, according to researcher Dorenfest Group.
Dollars are dandy. Even more important, though, hospitals finally seem to be figuring out how to make their tech investments pay off. Clumsy, sluggish first-generation systems have been tossed out. Hospitals are listening to doctors and nurses and installing laptops, software, and Net technologies fine-tuned to the rhythms of their work. The results are beginning to show up in national statistics: Economy.com figures that health-care services productivity has risen about 2% annually since 2001, albeit at a slower pace than the overall economy.
Such measurements in health care are more art than science. In other sectors, productivity is measured as output divided by hours worked. But health-care output is tough to measure. You can calculate how many worker hours it takes to deliver a one-day hospital stay. But there's no consensus on how to measure whether the quality of that care is better or worse than in the past. That's why the federal government punts, declining to put out a productivity stat for health care. Economy.com measures production and worker hours without adjusting for quality of care. Other economists take issue with that calculation. But even if it's just directionally correct, it means that after many sluggish years, Hackensack and other institutions are delivering hospital stays, X-rays, and the like more efficiently.
Refining the Software
Is this the beginning of a sea change or a false start? That question is being hotly debated. Skeptics abound. Most recently, a high-profile study published in the Journal of the American Medical Association in early March showed that a tech system used by the University of Pennsylvania's hospital to prescribe drugs created new ways to make errors. Why? In one example, it scattered patient data and drug-ordering forms over so many different computer windows that it increased the likelihood of doctors ordering the wrong medications. "Hospitals need to make the systems work with the way medicine is practiced," says Ross Koppel, the study's lead author and a professor at the University of Pennsylvania.
But the experiences of Hackensack and other hospitals nationwide suggest that health care really is making its way into the Digital Age. Hackensack has successfully put in place an electronic prescription drug system. The New Jersey hospital, however, has spent long hours refining its software to eliminate many of the potential pitfalls cited in the University of Pennsylvania study. Such tech work has helped boost Hackensack's operating margins, to 3.1% last year from 1.2% in 2000.
The stakes couldn't be higher. Health care accounts for 15% of the U. S. economy, or $1.7 trillion. It's so gargantuan that any efficiency gains make an impact on the overall economy. Dr. David J. Brailer, President George W. Bush's point man on health-information technology initiatives, predicts that tech investments could lead to $140 billion a year in cost savings by 2014, or an estimated 6% of health-care spending in that year. "I actually think that's conservative," says Brailer. "There's a body of literature that shows case studies with much larger savings."
More important than saving money, of course, is saving lives. Poor information kills some 7,000 Americans each year just by missing drug-interaction problems, according to the National Academy of Sciences Institute of Medicine. All together, hospital errors result in up to 98,000 deaths annually. Early evidence indicates that proper technology can reduce the toll. Hospitals that have begun using electronic prescription systems have seen up to 80% fewer prescription errors. And at Hackensack, patient mortality has dropped by 16% over the past four years, in part because of its digital initiatives.
While hospitals have always been devoted to saving lives, they're turning to tech now because of a fundamental change in U.S. health care. Pay for performance, that central tenet of Corporate America, is making its way into the world of health care. Medicare is leading the way. It set up a trial with 277 hospitals in which it's paying juicier fees for high-quality results in five treatment areas. "We're trying to create the business case for more coordinated, efficient care, and inevitably that means more investment in tech," says Dr. Mark McClellan, the head of Medicare.
It's quite a start. Medicare's trial suggests better information can lead to better care. The evidence? Since the 277 hospitals began gathering performance data and entering the spotlight of being publicly measured against their peers, the average quality-of care-scores have increased 6%. "This gave hospitals a chance to see if public measurement and incentives would let them improve, and it has," says Stephanie Alexander, senior vice-president at Premier Inc., a research co-op of 1,500 hospitals that helps run the Medicare study.
Private health insurers are moving toward pay-for-performance, too. Over the past two years, WellPoint Inc., UnitedHealth Group, and many other insurance companies have begun rating hospital treatments and rewarding high-quality care. Here's how it typically works: A hospital gets a fixed up-front fee for, say, a heart bypass. If the hospital scores high on quality for bypasses, it will get a bonus on top of that fee, usually 1% to 4%.
So why not jump in with both feet? Hospitals have financial constraints on their ability to purchase technology. There are competing demands. And while most hospitals can issue debt, they typically only do so for big-ticket items, such as a new building. For tech investments, hospitals pay for what they can out of cash flow. And cash isn't easy to come by these days. The nation's 5,760 hospitals have seen average profit margins fall for eight years, according to the American Hospital Assn.
Hackensack is a case study for the U.S. health-care system as it navigates these issues in the years ahead. It isn't a deep-pocketed academic hospital with the budget to do things few others can. It's a community hospital, nine miles from New York City, that symbolizes the challenges confronting local hospitals around the country. To get a firsthand look at this future, two BusinessWeek reporters went on rounds with doctors and nurses at Hackensack, sat in on staff meetings, and talked with patients about their experiences.
The most important piece of Hackensack's digital initiatives is the networked software that acts as the hospital's central nervous system. Nurses use wireless laptops on wheels to log in to this system to record patients' symptoms and get all the information they need to shuttle patients through their stay. Doctors tap into the network via wireless laptops or PCs to order prescriptions and lab tests. Everything else is linked into the system, from the automated pharmacy to the X-ray room, eliminating the need for most faxes, phone calls, and other administrative hassles.
Even Mr. Rounder is hooked in. As doctors use the robot to "visit" patients, they can zip off requests to refill drug orders or run lab tests from a separate window on their computer screens. The robot has proven its worth. When a blizzard stranded Dr. Garth Ballantyne at home, 82 miles from the hospital, he fired up Mr. Rounder. "I wouldn't have been able to drive here to see my patients that day," the surgeon says.
Still, the picture that emerged of Hackensack's experience is complex. The institution has poured $72 million into IT projects since 1998, and the technology clearly is helping both productivity and quality of care. It's one of two hospitals in the Medicare pay-for-performance test group that has scored in the top 10% for four of the five categories Medicare is tracking -- in heart failure, cardiac bypass, heart attack, and pneumonia. Yet Hackensack has a long way to go before it realizes the full potential of its digital initiatives. One sign of the distance to travel: Only 10% of tests and orders are entered electronically.
Hackensack offers clear lessons for other hospitals. Making technology pay takes time. It can be several years before the results of initiatives begin to surface. Just as important, making the technology work well takes a huge amount of effort. Hackensack's central software system is constantly being tweaked to ensure that it's woven into the routine of the medical staff.
Most important, doctors remain the key to hospitals' success. Wooing them is an extremely delicate task. Only 7% of doctors actually work for hospitals. The others are essentially independent operators who are not required to do what hospital administrators want. Many are wary of gadgets that take extra time or interfere with their work. But they aren't Luddites. Most are willing to experiment with new technology.
The key to winning them over? Hackensack and others must make sure the technology saves time, is easy to use right from the start, and doesn't get in the way of patient relationships. Over the past two years, Hackensack began the task of getting doctors to embrace the technology. It has made large strides.
The story of Hackensack is no simple parable. Doctors and nurses grouse about the new tech systems. Software fails; Web sites crash. The reality is that bringing technology into health care is messy. So don't take these notions on faith. Read on.
By Timothy J. Mullaney and Arlene Weintraub