Increases in Electronic Health Records (EHRs) functionality (i.e. the number of EHR functions available) are associated with reductions in total hospital costs, driven mainly by lower outpatient costs. However, the effect of increased EHR functionality on outpatient costs is exclusively seen in urban hospitals, where a wide array of EHR functions are associated with cost decreases. Improvements in EHR functionality do not seem to significantly reduce costs for rural hospitals.