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        Investment in information technology can improve profitability in U.S. hospitals

        April 27, 2021 By Joe McAdory

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        The Harbert College is committed to producing research that advances the academy, extends business thought and shapes best practice.

        Recently published research by Kangkang Qi and Sumin Han, assistant professors in the Department of Systems and Technology at the Harbert College of Business at Auburn University, found information technology plays a vital role in enhancing hospital revenue. Their paper, “Does IT Improve Revenue Management in Hospitals?”, which was published in the Journal of the Association for Information Systems, reveals hospitals that implement new IT systems significantly increase net patient revenues – while reducing money lost in uncompensated care.

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        Dr. Kangkang Qi, Assistant Professor in Systems and Technology


        Qi and Han accrued data from more than 5,300 healthcare providers nationwide. Using this information, researchers studied the relationships between clinical and business IT investments and revenue management performance.

        According to their findings, clinical and business IT implementations lead to short-term and long-term higher revenue generation. The combination of one additional unit of clinical IT implementation and one additional unit of business IT implementation increased a hospital’s annual net patient care revenue by $1.73 million on average.

        Another mechanism through which hospitals manage revenue is via controlling uncompensated care for indigent patients who cannot be turned away, or patients who have not fully paid their medical bills. Why is this important? The American Hospital Association stated that hospitals have provided more than $702 billion in uncompensated care to patients. In contrast, the paper revealed that one more unit of clinical IT and one more unit of business IT adoption decreased uncompensated care ratios by 27.9 percent and 19.1 percent, respectively.

        Improved information technology services were found to play an integral role in allowing hospitals to identify mechanisms to enhance revenues via billing, budget, scheduling, utilization management, debt collection, human resource, and property management systems through improved efficiencies.

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        Dr. Sumin Han, Assistant Professor in Systems and Technology


        Hospital size was also found to play a factor in maximizing the efficacy of IT investments. Larger hospitals, which possess greater human capital and medical and administrative resources, were more successful at utilizing new technologies to facilitate revenue management through both expanding revenue sources and managing sunk costs associated with uncompensated care.

        The research also found that hospital service missions – profit or non-profit – were associated with different revenue models. These differences impacted hospitals’ incentives for participating in some revenue management strategies and implementing new IT systems. It was found that clinical IT investments benefitted for-profit hospitals more than non-profit hospitals.

        Though IT implementation will eventually improve efficiencies and increase revenue, Qi and Han report the benefits might not pay off immediately as complex clinical applications will require a steeper learning curve. Hospital administrators are recommended to exercise patience and tolerance regarding early struggles involving new IT implementations.

        With note that U.S. hospitals will spend approximately $120 billion on information technology in the coming years, this Harbert College research finds such investments to be a wise business decision.

        Dr. Kangkang Qi is an assistant professor of information systems management in the Department of Systems & Technology at the Raymond J. Harbert College of Business. His research interests include IT management, entrepreneurship, healthcare IT, social media, the economics of information systems, and business analytics. His work has appeared in several leading conference proceedings including Workshop on Information Systems and Economics (WISE) and INFORMS Conference on Information Systems and Technology (CIST) among others.

        Dr. Sumin Han is an assistant professor in the Department of Systems and Technology at the Raymond J. Harbert College of Business. Her current research focuses on dynamic panel data analysis, joint models, consumer behavior, and international business research. Her work has appeared in journals such as Journal of Business Research, Public Administration Review, and European Journal of Marketing.

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