Financial Position and
Adoption of Electronic
Health Records:
A Longitudinal
Perspective
2/20/2012
Jay Shen, Ph.D.
Greg Ginn, Ph.D.
Department of
Health Care Administration and Policy
School of Community Health Science
University of Nevada
jay.shen@unlv.edu
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Background
 The
national initiative to implement health
information technology in healthcare organizations
including hospitals aims to improve the
performance of hospitals with regard to cost and
quality
 Only a small percentage of hospitals have adopted
them
 This low rate of adoption is attributed in large part
to financial barriers
 Limited research has studied financial factors.
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Literature Review
 Wang
et al. (2005) examine profitability and
liquidity ratios measured by government payer
mix, return on assets, operating margin, cash flow
per bed, days cash on hand per bed, and total
operating revenue. They found that operating
revenue is positively associated with health
information systems adoption. It is noted that
asset turnover and leverage ratios were not
included in the study.
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Literature Review
 Kazley
& Ozcan (2007) found that EHR adoption
is significantly associated with environmental
uncertainty, type of system affiliation, size, and
urban location. However, the effects of
competition, munificence, ownership, teaching
status, public payer mix, and operating margin
were not significant. It is noted that liquidity, asset
turnover, and leverage ratios were not included in
the study.
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Literature Review
 Menachemi,
et al. (2006) take a different approach
by making financial ratios the dependent variable
and EHR adoption as the independent variable.
They found that outsourcing of IT functions did
not correlate with net inpatient revenue, net patient
revenue, hospital expenses, total expenses, cash
flow ratio, operating margin, or total margin. It is
noted that asset turnover and leverage ratios were
not included in the study.
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Literature Review
 Ginn,
Shen, and Moseley (2011) comprehensively
examined five financial ratios: (1) net days
revenue in accounts receivable, (2) total margin,
(3) the equity multiplier, (4) total asset turnover,
and (5) the ratio of total payroll to total expenses.
We found that only liquidity was significant and
nonlinearly associated with EHR adoption. Asset
turnover ratio was negatively associated with EHR
adoption.
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Research Question
 Sine
all existing studies were cross-sectional and
only focused on current financial positions and
EHR adoption, we would like to ask:
 Are
hospitals’ financial position in
previous years associated with the current
level of electronic health records (EHRs)
adoption?
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
 Design:
a retrospective longitudinal study
 Data: extracted from



The 2009 American Hospital Association electronic
health record implementation survey
The 2006 CMS Cost Reports and 2006 AHA Annual
Survey: approximating mid-term planning
The 2002 CMS Cost Reports and 2006 AHA Annual
Survey: approximating long-term planning
 Final
sample: 2,701 acute care hospitals in the
United States
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
Dependent variable: Level of EHR adoption: AHA EHR
biannual survey, (Jha et al., 2009)
Comprehensive EHR system 1) 24 electronic functions present in all
major clinical units
Basic EHR system
2) 8 electronic functions present in all
major clinical units
Below basic EHR system
3) None of the above
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
 Examples

of 24 electronic functions
Electronic Clinical Documentation
 Physician
notes
 Discharge summaries

Results Viewing
 Laboratory

reports
Computerized Provider Order Entry
 Radiology
tests
 Nursing Orders

Decision Support
 Drug
allergy alerts
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
 Independent
variables: five financial ratios
 Net
days revenue in accounts receivable:
liquidity
 Total asset turnover: asset management
 Total margin: profitability
 Equity multiplier: leverage
 Total payroll to total expenses ratio: human
resource intensity
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
Independent variable:
5 Financial ratios (Pink et al., 2005)
(Accounts receivable - allowances for bad debts)/
Net days revenue in accounts receivable= (net patient revenue/365)
Total asset turnover =
Total revenue/total assets
Total margin =
Net income /(net patient revenue + other revenue)
Equity multiplier =
Total assets/fund balance
Total payroll to total expenses ratio =
Total salary expenses/total expenses
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
 Control









variables
Bed size
Ownership type
Teaching hospital affiliation
System membership
Network participation
The number of full-time equivalent nurses per
adjusted average daily census
Percentages of Medicare patients and Medicaid
patients
Having capitation-based reimbursement
Herfindahl-Hirschmann index
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Methods
 Analytical
techniques
 General ordinal logistic regression
 5 independent variables converted to quartiles

The 1st quartile as the reference
 STATA 11
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Results
 2006
financial indicators and 2009 level of
EHR adoption
 Total
asset turnover:  Total margin: +
 Net
days revenue in accounts receivable: NS
 Equity multiplier: NS
 Total payroll to total expenses ratio: NS
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Results
 Total
number of hospitals in the sample: 2,701
 Level of EHR adoption by 2009
 Comprehensive
 98
EHR system
hospitals (3.6%)
 Basic
 418
EHR system
hospitals (15.5%)
 Non-basic
 2,185
EHR system
hospitals (80.9%)
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2/20/2012
Results
 2002
financial indicators and 2009 level of
EHR adoption
 Net
days revenue in accounts receivable: nonlinear (2nd quartile higher than other quartiles),
significant
 Total asset turnover:  Total margin: +
 Equity multiplier: non-linear, significant
 Total payroll to total expenses ratio: NS
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Results
 Significant
control variables (in both 2002 and 2006)
for the 2009 level of EHR adoption




Number of FTE nurses per adjusted average daily
census: +
Bed size or teaching hospital : +
Medicare or Medicaid patients percentage: Investor owned (for-profit) hospitals: -
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Discussion
 As
expected, the highest quartile of total margin in
previous years was positively associated with the
current level of EHR adoption. It does seem
reasonable that hospitals with the greatest
profitability would be more comfortable planning
for a major investment in health information
technology
 This financial indicator was not significant in our
prior cross-sectional study
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Discussion



Higher quartiles of total asset turnover in previous years
were negatively associated with the current level of EHR.
Although it seems that hospitals with higher asset turnover
would be more able to afford EHR adoption, it is also true
that the smaller hospitals would have fewer assets and
therefore higher asset turnover rates. Since it is the larger
hospitals with disproportionately more assets that tend to
adopt EHRs first, it does make sense that total asset turnover
would be negatively associated with EHR adoption.
Alternatively, it might be that some hospitals with high total
asset turnover are this way as a result of low asset book
values due to that they have comparatively old facilities.
Thus, these hospitals with high total asset turnover rates may
have more pressing investment needs than adopting EHRs.
Consistent with the results of our prior cross-sectional study
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2/20/2012
Discussion
 As
the net days revenue in accounts receivable
increased in the second quartile, hospitals were
significantly less likely to achieve the current level
of EHR adoption. This makes sense in that
hospitals in the lowest quartile might be there
because they simply are not generating enough
revenue, and hospitals in the third and fourth
quartiles might have inefficient collection policies.
Thus, hospitals in the second quartile might be the
most liquid and therefore more inclined to make
the decision to adopt EHRs
 Consistent with our prior cross-sectional study
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2/20/2012
Discussion
 As
for the equity multiplier, hospitals in the
second and third quartiles became less likely to
adopt EHRs. This makes sense in that hospitals
that are more highly leveraged might be more
reluctant to make a significant investment in EHR
adoption
 Not significant in our prior cross-sectional study
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Conclusions
 The
financial position is associated with adoption
of EHRs, especially the financial position several
years prior to the decision.
 EHR adoption is in large part a strategic decision
that hospitals take to better align themselves with
their environment
 Health care executives need to make great efforts
for mid- and long-term financial planning in order
to successfully achieve a high level of EHR
adoption
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Limitations



Selections of financial ratios of three years and seven years
than the current EHR adoption were somehow arbitrary
because the data we use did not provide the exact date when
the hospital EHR systems were in place. Our focus was to
see, given the current level of EHR adoption, what were the
hospital’s financial positions three and seven years ago.
Some hospitals were left out of the study due to missing
provider numbers, extreme outliers, or questionable financial
data, it might discount our findings’ generalizability
Due to too many missing values, some variables, such as
adjusted daily census per staffed bed, were not used
HIMSS Annual Conference, Las Vegas, NV
2/20/2012
Thank You!
Questions?
HIMSS Annual Conference, Las Vegas, NV