Electronic Health Records (EHRs) are computer programs used by hospitals to collect information about patients, treatments, and outcomes. Some experts believe that EHRs can improve health care quality and reduce hospital costs by reducing errors, facilitating the flow of information, and allowing health professionals to do tasks with fewer resources. Early studies on EHRs and hospital costs estimated that EHRs could reduce annual health spending by between $78 and $81 billion.

However, until recently, there had not been a study that analyzed the relationship between EHRs and hospital costs for urban and rural hospitals separately. This comparison between rural and urban hospitals is essential as previous studies have found substantial differences in both costs and EHR use in rural versus urban hospitals. For instance, past studies have found that rural hospitals tend to have less knowledge of how their EHRs work compared to their urban counterparts and are 71% less likely to consider cost reductions as a benefit of EHRs.

On top of this, numerous studies have noted the clear rural vs. urban hospital cost differences, which are the result of differences in size, case mix-index, and discharges between rural and urban hospitals.   

Considering the differences between rural and urban hospitals in terms of EHR use and hospital costs, our new study explores whether EHR use helps both urban and rural hospitals decrease costs.

First, the study measures the differences in costs between rural and urban hospitals and finds that, on average, total hospital costs are seven times higher in urban locations. Hospital costs not only differ in size, but their composition is also different, with outpatient costs being a larger share of costs in rural areas.

The study also analyzes the differences in EHR use –measured as the number of EHR functions a hospital has– across geographies and finds that urban hospitals have more EHR  functions available than rural hospitals. However, the difference in number of functions available between rural and urban hospitals has been decreasing over time. 

After measuring the rural/urban differences in EHR use and hospital costs, the study aims to answer the question of whether EHRs are helping both rural and urban hospitals reduce costs. For urban hospitals, the answer is yes. EHR use helps urban hospitals reduce costs, particularly ancillary and outpatient costs. For rural hospitals, however, the results are not so promising, as EHR use is never significantly associated with any changes in costs.

EHRs have many different functions, such as electronic clinical documentation (where doctors and nurses write their notes on patients), results viewing (where laboratory tests results can be accessed), computerized provider order entry (where treatment instructions are sent), decision support (where important knowledge and information is provided), and other (such as telehealth).

Because different EHR functions can affect costs in rural versus urban hospitals differently, the last question that the study aims to answer is whether some specific EHR functions are helping hospitals reduce costs. Here too the results differ between rural and urban hospitals. The study finds that no EHR functions affect rural hospital costs, while many EHR functions reduce urban hospital costs.

This study is important because it shows that EHR use does not have the same effect on rural and urban hospital costs. Increased EHR use reduces hospital costs in urban hospitals. However, while this finding is likely to interest hospital administrators, the results are less optimistic for rural hospitals, where EHR use does not seem to have any influence on costs.

It is important to note that EHR use reduces urban hospital costs by reducing ancillary and outpatient costs, but this does not happen in rural hospitals. The decrease in outpatient costs in urban, but not rural, hospitals is relevant because of the higher proportion of total hospital costs associated with outpatient services in rural hospitals. This may be happening because rural patients are less likely to manage their personal health information online, or because urban hospitals share more information, which in turn translates into less time and resources dedicated to gathering patient data at the hospital.

Rural hospital closures are concerning, and hospitals in financial distress are at an exceptionally high risk of closure. Controlling costs is vital for rural hospitals aiming to remain open. Proponents of EHRs believe that EHR use can help hospitals reduce hospital costs. This seems to be true for urban, but not rural hospitals. Hospital administrators looking to increase EHR use in rural areas should consider the limited potential of EHRs for short-term cost reductions.

Claudia Rhoades is a Graduate Research Assistant at Oklahoma State University, Brian Whitacre is Professor and Neustadt Chair at Oklahoma State University, and Alison Davis is H.B. Price Professor at the University of Kentucky and Director of the Center for Economic Analysis of Rural Health (CEARH). Their study was recently published in the Journal Applied Clinical Informatics and is entitled “Higher Electronic Health Record Functionality Is Associated with Lower Operating Costs in Urban—but Not Rural—Hospitals.”

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