The effect of information technology investment on firm-level performance in the health care industry By: Mark Thouin, James J. Hoffman, and Eric W. Ford Thouin, M., Hoffman, J. J., and Ford, E. W. (2008). The Effect of Information Technology (IT) Investments on Firm-Level Performance in the Healthcare Industry. Health Care Management Review. 33(1), pp. 60-69. Made available courtesy of Lippincott, Williams, and Wilkins: http://www.lww.com/ *** Note: Figures may be missing from this format of the document *** Note: This is not the final published version Abstract: Background: The return on investment for information technology (IT) has been the subject of much debate throughout the history of management information systems research. Often referred to as the productivity paradox, increased IT investments have not been consistently associated with increased productivity. Understand individual IT factors that directly contribute to business value should provide insight into the productivity paradox. Purpose: The effects of 3 different firm-level IT characteristics on financial performance in the health care industry are studied. Specifically, the effects of IT budget, IT outsourcing, and the relative number of IT personnel on firm-level financial performance are analyzed. Methods: Regression analysis of archival survey data for 914 Integrated Healthcare Delivery Systems is performed. Results: IT budgetary expenditures and the number of IT services outsourced are associated with increases in the profitability of Integrated Healthcare Delivery Systems, whereas increases in IT personnel are not significantly associated with increased profitability. Each one tenth of a percentage increase in IT expenditures is associated with approximately $950,000 in increased profit for an average-sized Integrated Healthcare Delivery System. Implications: To increase profitability, IT administrators should increase IT budgetary expenditures along with IT outsourcing levels. IT administrators in the health care industry can use such findings during budgeting cycles to justify increased investments in IT personnel as being budget neutral while increasing organizational capacity. Key words: health care, IT outsourcing, IT payoff, outsourcing, productivity, return on investment Article: Information management is fundamental to the health care delivery system. Given the large volume of transactions, the fragmented communication between providers, and the need to integrate new scientific evidence into practice, the limitations of paper-based information systems are substantial. Information technology (IT) usage in the health care industry has the potential to improve quality of care and dramatically reduce the cost of providing health-care-related services (Hillestad et al. 2005; Barlow, Johnson, & Steck, 2004; Wang, Mitchell, Cumming, & Smith, 2003). IT can improve health care quality by facilitating clinical decision making, reducing the cognitive burden of practitioners, and automating patient safety practices. In addition, IT has the potential to dramatically reduce the cost of providing health care by streamlining back office operations. Researchers at the Boston University School of Public Health estimated that $1.9 trillion was spent on health care in the United States in 2005, an increase of 48% since the year 2000 (―Report Estimates Health Care Cost Increase at $621 Billion Since 2000,‖ 2005). The cost of health care places a significant burden on the U.S. economy. Increasing health care providers’ performance through technological innovation has the potential to decrease the burden on purchasers and increase the accessibility of health care to a larger segment of society. The benefits associated with the use of IT in an organizational environment are well established (Bharadwaj, 2000; Mitra, 2005). IT enables organizations to manage organizational knowledge, improve decision making,