Doctors hear it all the time: if they kept patients’ files on computers instead of on paper, it would save time and money-and patients would get better care. Still, less than five percent of U.S. physicians use electronic record systems. But new regulations from the U.S. Department of Health and Human Services could finally force doctors to enter the digital age.

None of the regulations, the first set of which is due to take effect in October 2002, prohibits the use of paper records, but they require health-care organizations to document and manage so much information that paper-based offices will likely find themselves unable to comply. “The whole field of medicine is going to change dramatically,” says David Kibbe, CEO of Canopy Systems, a clinical software firm in Chapel Hill, NC.

The regulations, combined with rising concerns about medical errors, have prompted nearly two-thirds of doctors to make plans to implement electronic record systems, according to a recent survey by the research firm Gartner. And some 300 software companies nationwide are waiting in the wings, offering everything from speech recognition software to replace note-taking to programs that help doctors make treatment decisions.

The medical offices of Oregon managed-care giant Kaiser Permanente Northwest went electronic in 1994, converting all their lab tests, notes and treatment guidelines to digital files. According to Kaiser physician Homer Chin, the company has saved $5 million a year in labor costs alone. Still, about 70 percent of doctors work in small practices that probably won’t be able to invest millions of dollars in their own computer systems and may instead turn to outside vendors to store and manage their records over the Internet. “The market for these vendors is huge,” says Thomas Handler, a health-care analyst at Gartner. And the potential for more effective, and safer, health care could be even greater.