IT Governance Characteristics, Electronic Medical Records Sophistication, and Financial Performance in U.S. Hospitals: An Empirical Investigation

As a result of a recent federal government mandate, an increasing number of hospitals have decided to adopt electronic medical record (EMR) systems. This initiative is expected to lead toward more efficient and higher quality health care; however, little is known about governance characteristics and organizational performance for EMR adopters. Our goal is to inform theory and practice by examining hospitals with a sophisticated EMR and comparing those hospitals to similar hospitals (with a less sophisticated EMR) to understand the association between information technology (IT) governance characteristics and the implications on financial performance. Leveraging elements of the upper echelon theory, we posit that hospitals in which the chief information officer (CIO) reports to the chief executive officer, CIO turnover is low, and an IT steering committee is present are more likely to have a sophisticated EMR. We argue that EMR sophistication leads to improved financial performance. Our results underscore the importance of continuity in the CIO position on successful EMR implementations. Results also show that hospital size and financial performance are strongly associated with EMR sophistication. In addition, we find that a sophisticated EMR appears to be a fundamental element in improving hospitals’ revenue cycle management. Moreover, we find that hospitals with a sophisticated EMR appear to be more profitable. Finally, we observe that total payroll expense adjusted by total discharges drops among the sophisticated hospitals, potentially due to an increase in employee productivity. These insights can serve as a basis for tempering expectations relative to the financial impact of EMR adoption.