Hospital performance: Efficiency or quality? Can we have both with IT?

• This paper explores influence of IT investment on hospital efficiency and quality.
• There is a direct effect of IT investment on service quality in hospitals.
• There is a moderating effect of quality on operational efficiency in hospitals.
• There is a U-shaped relationship between IT investments and operational efficiency.
• IT investments have diminishing returns beyond a certain point.

The influence of IT investment on hospital efficiency and quality are of great interest to healthcare executives as well as insurers. Few studies have examined how IT investments influence both efficiency and quality or whether there is an optimal IT investment level that influences both in the desired direction. Decision makers in healthcare wonder if there are tradeoffs between their pursuit of hospital operational efficiency and quality. Our study involving a 2-stage double bootstrap DEA analysis of 187 US hospitals over 2 years found direct effects of IT investment upon service quality and a moderating effect of quality upon operational efficiency. Further, our findings indicate a U-shaped relationship between IT investments and operational efficiency suggesting that IT investments have diminishing returns beyond a certain point.