Does IT Improve Revenue Management in Hospitals?

Abstract

In this study, we examine the question of how the adoption of IT systems influences revenue management in hospitals. We posit that IT plays a vital role in enhancing revenue by increasing net patient revenue and decreasing the uncompensated care ratio. Using unique datasets from various proprietary resources, we test the relationships between IT (clinical and business) investment and revenue management performance using dynamic panel data models with the generalized method of moments (GMM). Empirical results generally support our hypotheses. We found that both clinical and business IT investment have short-term and long-term effects on boosting net patient revenue and that clinical IT investment has a short-term contemporaneous effect on reducing the uncompensated care ratio. Moderation analyses suggest that: (1) larger hospitals tend to utilize business IT systems better in facilitating revenue management through both channels over the long run, but not necessarily using clinical IT; and (2) for-profit hospitals outperform their nonprofit counterparts when it comes to managing revenues through clinical IT; however, no interaction effect with business IT was found. This paper contributes to the literatures on the business value of IT investment and healthcare IT in the fields of information systems, revenue management, healthcare administration. We conclude this paper by discussing theoretical and managerial implications.