$200 Billion Price Tag for National Health Network

By Stacy Lawrence  |  Posted 08-04-2005
In a landmark paper released in the August issue of the Annals of Internal Medicine, a panel of experts determined a model for a national health information network in the United States and created a cost estimate for the project.

The estimate aims for a five-year time frame, an even more aggressive timeline than the 10-year timeframe put forth by President Bush last year. According to the report, a fully operational national health information network would require $156 billion in capital investment over the next five years plus an additional $48 billion in annual operating costs. The amount of capital investment, $156 billion, is roughly equal to 2 percent of annual health care spending.

The report estimates that two-thirds of the cost will be for functionality while one-third will be for interoperability. After the initial investment, they expect that split to be more even.

The estimate is based on the inclusion of a wide range of functionalities including in-patient and ambulatory results viewing, in-patient and ambulatory electronic health record, in-patient and ambulatory computerized physician order entry (CPOE), electronic claims submission, electronic eligibility verification, secure electronic patient communication, and electronic prescription acceptance by pharmacies.

Currently, only electronic claims submission is in place for most health care providers. This has been due to pressure and expectations from payers such as health insurers and federal programs like Medicare.

The paper addresses the needs and requirements of a wide range of stakeholders such as physicians' offices, hospitals, skilled nursing facilities, home health agencies, clinical laboratories, payers and pharmacies.

The existing growth in spending on health IT is inadequate to reach the amount required to put a national health information network in place within the next five years. If current trends continue, only about $53 billion will be expended in capital costs and $21 billion in annual operating costs.

And only about $24 billion will be spent on functionality if the existing trajectory continues, according to the study. That's only one-quarter of the estimated amount needed for full functionality in five years.

New legislation proposes awarding a half billion dollars a year for health IT—half in grants, half in loans. Click here to read more.

And the cost burden is spread unevenly among the stakeholders. "A major barrier to widespread IT adoption is that costs are generally incurred by a few entities, while benefits accrue to many," notes the paper.

The report reaches the conclusion that further public sector investment and leadership will be required to meet the goals established. It concludes, "It seems unlikely that the private sector will move forward rapidly to adopt IT without public sector investment or incentives, both in terms of money and leadership, although this incurs the risk that public dollars will substitute for private dollars targeted."