The Effect of Electronic Medical Records on Hospital Utilization Costs

This paper examines the impact of adopting electronic medical record (EMR) systems on hospital utilization costs. We proxy for such costs using hospital charges (i.e., prices of services rendered) for Medicare diagnosis-related groups (DRGs), and hospitals’ cost-to charge ratios (total Medicare allowable costs divided by total charges). Our sample is US hospitals, which exhibit considerable variation in the timing and extent of EMR adoption. We document a negative association between EMR adoption and both hospitals’ DRG charges and cost-to-charge ratios, consistent with efficiency improvements stemming from higher quality of information supporting clinicians in patient care decision-making. Our results are robust to different EMR adoption measures, and various approaches to enhance identification including propensity score matching and a placebo test. Overall, our results indicate that EMR adoption is associated with reductions in healthcare expenditures, despite potential frictions such as high costs of adoption, maintenance, and integration