An electronic system for filing patients' records is heading for TennCare, the $8.7 billion Medicaid system for the state of Tennessee. The e-health initiative would put TennCare, a financially beleaguered system that has been struggling to survive, at the vanguard of medical technology.

A subsidiary of BlueCross BlueShield of Tennessee, the state's largest insurer, announced this summer that it would create electronic health records for TennCare's 1 million beneficiaries. The service will be free for one year to any physician who accepts TennCare patients. If the state continues to use the system, BCBS would begin charging the state $1.20 per patient per month.

Called the Community Connection project, the electronic records database will be the largest of its kind in the country. Physicians will be able to access patient records via a secure Web site and view the patient's history of diagnoses and prescribed drugs. Although the electronic records will not include a patient's complete chart, doctors hope the new system will help eliminate unnecessary medical tests, reduce treatment errors and cut down on fraud. BCBS, which plans to invest $25 million over the next three years to underwrite the electronic system, estimates it will save $3 to $4 for every $1 it spends on the system.

The news out of Tennessee was followed by a similar nationwide announcement by Medicare officials, who said they would begin to give doctors who take Medicare patients free software to computerize their recordkeeping. Officials said the software giveaway could save an office of five Medicare doctors up to $100,000--the amount an investment in e-health records would likely cost a practice.