New clinical and business IT systems help hospitals increase patient revenue and cut losses from uncompensated care.

Recent 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 that information technology plays a vital role in enhancing hospital revenue. Qi and Han’s paper “Does IT Improve Revenue Management in Hospitals?” was published in the Journal of the Association for Information Systems.

Their paper reveals that hospitals that implement new IT systems significantly increase net patient revenues while reducing money lost in uncompensated care.

Improved information technology services play an integral, multi-faceted role in hospitals, enhancing revenues in billing, budgeting, scheduling and collecting debt. Also reaping the benefits: utilization management, human resources and property management systems.

Qi and Han accrued data from more than 5,300 healthcare providers nationwide. Using this information, researchers studied the relationships between clinical IT — the application of informatics and information technology to deliver healthcare services — 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. When calculating testing units — the most minute part of an application that can be measured — 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. This matters, as the American Hospital Association found that hospitals have provided more than $702 billion in uncompensated care to their patients in recent years. 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% and 19.1%, respectively. 

Hospital size also plays a factor in maximizing the efficacy of IT investments, the researchers found. Larger hospitals, with greater human capital and medical and administrative resources, were more successful
at utilizing new technologies to facilitate revenue management through 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 benefited for-profit hospitals more than non-profit hospitals; the financial stability of for-profit hospitals typically allows them to purchase advanced medical technologies more easily than non-profit hospitals, which often face significant debt and other financial disadvantages.

Though IT implementation will eventually improve efficiencies and increase revenue, Qi and Han report the benefits might not pay off immediately because complex clinical applications will require a steeper learning curve. However, given 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.