Week 12_Menon and Kohli (2013)_Xue Guo

Blunting Damocles’ Sword: A Longitudinal Model of Healthcare IT Impact on Malpractice Insurance Premium and Quality of Patient Care

Menon and Kohli (2013) examine the impact of IT investments on actual product or service quality. Specifically, this paper studies the relationship between the past healthcare IT (HIT) expenditure and the malpractice insurance premium (MIP). It mainly wants to investigate two problems (1) whether past HIT expenditures affects MIP and the quality of patient care and (2) whether this expenditure moderates the relationship between past MIP and the quality of patient care.

The authors propose that HIT can incur lower MIP and improve the patient care quality because it can efficiently monitor, control, and reduce information asymmetry between the hospital and insurer. Also, HIT’s recordkeeping and monitoring capabilities induce employees and physicians to align their behaviors with service delivery prescribed, which result in higher quality.

Empirically, the paper develops a longitudinal model including a panel data set for 66 general medical and surgical hospitals. It uses readmission and mortality rate as the proxy of the quality of patient care and adopts the depreciation expenses across information processing units as the measure of HIT. The regression model uses the random effects to rule out the impact of hospital-specific and time-specific factors. In addition, the model uses lags of dependent variables as instruments to account for the endogeneity of the independent variables.

The paper found that past HIT expenditures improve the quality of patient care and that it is negatively associated with current MIP. They also found a negative moderating effect of past HIT expenditures on the link between past MIP and current service quality. This paper contributes to the business value of IT by conceptualizing the impact of HIT on ex-ante risk as an expectation and future operations.