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Code red: how software companies could screw up Obama's health care reform.

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The central contention of Barack Obama's vision for health care reform is straightforward: that our health care system today is so wasteful and poorly organized that it is possible to lower costs, expand access, and raise quality all at the same time--and even have money left over at the end to help pay for other major programs, from bank bailouts to high-speed rail.

It might sound implausible, but the math adds up. America spends nearly twice as much per person as other developed countries for health outcomes that are no better. As White House budget director Peter Orszag has repeatedly pointed out, the cost of health care has become so gigantic that pushing down its growth rate by just 1.5 percentage points per year would free up more than $2 trillion over the next decade.

The White House also has a reasonably accurate fix on what drives these excessive costs: the American health care system is rife with overtreatment. Studies by Dartmouth's Atlas of Health Care project show that as much as thirty cents of every dollar in health care spending goes to drugs and procedures whose efficacy is unproven, and the system contains few incentives for doctors to hew to treatments that have been proven to be effective. The system is also highly fragmented. Three-quarters of Medicare spending goes to patients with five or more chronic conditions who see an annual average of fourteen different physicians, most of whom seldom talk to each other. This fragmentation leads to uncoordinated care, and is one of the reasons why costly and often deadly medical errors occur so frequently.

Almost all experts agree that in order to begin to deal with these problems, the health care industry must step into the twenty-first century and become computerized. Astonishingly, twenty years after the digital revolution, only 1.5 percent of hospitals have integrated IT systems today--and half of those are government hospitals. Digitizing the nation's medical system would not only improve patient safety through better-coordinated care, but would also allow health professionals to practice more scientifically driven medicine, as researchers acquire the ability to mine data from millions of computerized records about what actually works.

It would seem heartening, then, that the stimulus bill President Obama signed in February contains a whopping $20 billion to help hospitals buy and implement health IT systems. But the devil, as usual, is in the details. As anybody who's lived through an IT upgrade at the office can attest, it's difficult in the best of circumstances. If it's done wrong, buggy and inadequate software can paralyze an institution.

Consider this tale of two hospitals that have made the digital transition. The first is Midland Memorial Hospital, a 371-bed, three-campus community hospital in southern Texas. Just a few years ago, Midland Memorial, like the overwhelming majority of American hospitals, was totally dependent on paper records. Nurses struggled to decipher doctors' scribbled orders and hunt down patients' charts, which were shuttled from floor to floor in pneumatic tubes and occasionally disappeared into the ether. The professionals involved in patient care had difficulty keeping up with new clinical guidelines and coordinating treatment. In the normal confusion of day-to-day practice, medical errors were a constant danger.

This all changed in 2007 when Midland completed the installation of a health IT system. For the first time, all the different doctors involved in a patient's care could work from the same chart, using electronic medical records, which drew data together in one place, ensuring that the information was not lost or garbled. The new system had dramatic effects. For instance, it prompted doctors to follow guidelines for preventing infection when dressing wounds or inserting IVs, which in turn caused infection rates to fall by 88 percent. The number of medical errors and deaths...

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