Temporal Impacts of Health Information Technology on Hospitals’ Financial Performance

Abstract

Investments in health information technology (HIT) are known to improve financial and
operational performance in hospitals. However, it is less understood whether this improvement is
short-term, medium-term, or long-term. This paper investigates the effect of HIT investments on
hospitals’ cost-to-charge ratio, a financial metric that accounts for both costs and revenues, at
different time lags after the initial investment. Using panel data on U.S. hospitals from 2010 to
2021, we report that the impact of HIT on hospital cost-to-charge ratio is realized with a lag of
zero to four years, when controlled for hospital differences such as rural vs urban location, public
vs private ownership, proportion of uncompensated care, and year-over-year variations. This effect
becomes non-significant after four years as the effect of HIT wears out. We also quantify the
returns from HIT investment. A 100% increase in HIT investment results in a reduction of 3.3 to
6.0% in cost-to-charge ratio between years 0 through 4 after the HIT investment. Implications of
these findings for research and practice are described.