Does EMR Adoption by Nursing Homes Decrease Hospitalization Costs?

Electronic Medical Records (EMR) have the potential to reduce medical expenditures by increasing communication between healthcare providers and avoiding unnecessary tests and medical errors. Using a three-year panel of Medicaid spending (hospitalization costs) for long-term care patients in nursing homes, we analyze the effect of nursing home EMR adoption on out-of-home healthcare expenditures for their residents. We find a strong and persistent reduction of hospitalization costs when hospital and nursing homes both adopt EMR, a savings of about 13% of Medicaid expenditure on average for those patients (and as much as 35% for the subset of hospitals that are part of a hospital system). This is above the 3.5%-14% direct effect of nursing home adoption alone. Given the networked nature of healthcare delivery for long-term care patients or patients with chronic conditions, our findings underscore the importance of looking outside the adopting institution when accounting for health IT (HIT) value.