Do Electronic Health Record Systems Increase Medicare Reimbursements? The Moderating Effect of the Recovery Audit Program

Electronic health record (EHR) systems allow physicians to automate the process of entering patient data relative to manual entry in traditional paper-based records. However, such automated data entry can lead to increased reimbursement requests by hospitals from Medicare by overstating the complexity of patients. The EHR module that has been alleged to increase reimbursements is the Computerized Physician Order Entry (CPOE) system, which populates patient charts with default templates and allows physicians to copy and paste data from other patients’ records. To combat increased reimbursements by hospitals from Medicare, the Centers for Medicare and Medicaid Services implemented the Recovery Audit Program, first as a pilot in six states between 2005 and 2009, and then nationwide in the entire United States of America in 2010. We examine whether the adoption of CPOE systems by hospitals is associated with an increase in reported patient complexity, and if the Recovery Audit Program helped to attenuate this relationship. We find that the adoption of CPOE systems significantly increases patient complexity reported by hospitals, corresponding to an estimate of $1 billion increase in Medicare reimbursements per year. This increase was attenuated when hospitals were regulated by the Recovery Audit Program. Notably, those recovery auditors who developed the ability to identify the use of default templates, copied-and-pasted data, and cloned records were the most effective in reducing increased reimbursements. These findings have implications on how to combat Medicare reimbursements paid by taxpayer dollars with the Recovery Audit Program, and how this IT audit can prevent the misuse of information systems to create artificial business value of IT by hospitals. Contributions to Information Systems and Healthcare research, practice, and public policy are discussed