Fuzzy Math? Rising Costs in Government's Digital Health Stimulus

Creating digital medical records for every American within the next five years – a key provision of President Obama’s stimulus package -- could cost more than twice the $19.5 billion figure that has been cited by federal officials.

Federal budget documents show that actual spending for the plan, which will use stimulus money to help doctors and hospitals defray the cost of installing high-tech records systems, could hit nearly $47 billion. 

The discrepancy between the Obama administration’s $19.5 billion public estimate [1] and the entry in the budget of the U.S. Department of Health and Human Services mostly arises from the government’s calculation that it will recoup some of the cost of subsidizing digital systems through billions of dollars in reduced federal health spending. But many health analysts are highly skeptical that such savings can be accurately predicted.

In late January, federal health officials said, they forecast paying out about $31 billion between 2011 and 2016 to hospitals and doctors who buy the computerized record systems and make “meaningful use” of them. Then they subtracted $12 billion, the amount the Congressional Budget Office has estimated the government could save over 10 years in spending for Medicare and Medicaid if delivery of health care is made more efficient.

Officials told the news media in March the cost would be about $19 billion -- and have continued to use that number even after Health and Human Services prepared budget documents in May that adjusted spending up from $31 billion to $45 billion. The budget also includes another $1.8 billion to run the program, for a total of $46.8 billion in stimulus spending.

A spokesman for the department, Nicholas Papas, said that the $47 billion figure is “undergoing revision and we anticipate it will decrease.” He said the agency expects to generate a “firmer figure” by the end of the year, but declined to say how much it would be.

Papas said there was no attempt to lowball the number for public consumption. Calculating both cost and benefits in the government’s estimate is a sound way to explain the price of the plan, he said. “Health information technology can help reduce unnecessary health care spending and bring our health care system into the 21 st century and make care safer and more efficient,” he said.

But one government watchdog said the agency was using “fuzzy math” in its public statements on the costs.

“Obviously, this is an effort to make the numbers look better,” said Steve Ellis, vice-president of Taxpayers for Common Sense, a non-partisan group. He likened it to a person eating fattening food but planning go to the gym later to work off the calories. “It is always a concern for us when the costs are tangible and the offsets are squishy,” he said.

Many health policy experts agree that electronic health records can cut costs by reducing harmful medical errors and wasteful spending. As examples, they often cite the cost of treating injuries that result from illegible doctor handwriting on prescriptions, and diagnostic tests that must be repeated because paper records of past ones aren’t readily available.

The goal of creating a digital health record for every American by 2014 was first set under President George W. Bush. The project picked up steam under Obama, who regards it as vital to health care reform. From the beginning, health officials built their estimates of projected savings into the plan to wire up more than half a million doctors and about 5,000 hospitals. A Health and Human Services press release announcing the appointment of David Blumenthal as Obama’s chief of health information technology in March, for instance, notes that the stimulus plan “includes a $19.5 billion investment” in the systems, which “will save money, improve quality of care for patients and make our health care system far more efficient.”

The $19 billion figure has appeared in numerous news articles and been widely picked up and repeated by many bloggers covering the fast-growing health information technology industry. Earlier this month President Obama’s chief technology officer, Aneesh Chopra, mentioned the $19 billion figure twice in a live video cast from the White House.

But it’s “totally hypothetical,” said Sharona Hoffman, a professor of law and ethic at Case Western Reserve University School of Law. She said it counts on savings “with no concrete evidence they will occur.”

Steve Findlay, a Consumers Union health policy analyst who sits on a federal advisory panel on electronic medical record standards, agreed that “nobody knows” whether savings will be realized. “I think that everybody ought to stop guessing at how much money we will save. There’s no way to know,” he said. “It’s an impossible calculation. Everybody should stop trying to predict it.”

Under the stimulus law, medical offices that buy or update electronic health records systems can receive up to $44,000 in bonus payments per doctor over five years, starting in early 2011. Hospitals are eligible for a $2 million payment in the first year, and millions more later on. The quicker they get hooked up the heftier the payment from the government.

By contrast, medical professionals who aren’t up and running five years from now will face payment cuts from Medicare, the federal health care plan for the elderly. Some of the Congressional Budget Office prediction for savings stems from these cuts, records show.

Jonathan Oberlander, a health care policy expert at the University of North Carolina at Chapel Hill, said he strongly supports using stimulus funds to spur adoption of digital record keeping. But he said savings are likely to be “peanuts” given overall spending on health care. Oberlander said he was “skeptical that it will produce huge savings or reliably control health spending.”

Officials at the Cleveland Clinic, one of the nation’s most prestigious hospitals, have spent more than $100 million over the past decade installing electronic records systems and training doctors and staff to use them. But the hospital does not see the investment as a cost saver.

The system “drives the quality of care we offer, but is not a cost-saving measure,” spokeswoman Eileen Sheil said. “We don’t tout cost savings.”

A Hefty Price Tag
U.S. Department of Health and Human Services budget documents indicate nearly $47 billion requested for digital records programs, more than double the amount publicly cited by agency officials. An HHS spokesman said the figure is "undergoing revision."
» Full document: Medicare and Medicaid Incentives and Administrative Funding [2]

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