You are quite right, it would be far cheaper in the long run to bite the bullet and populate the database with legacy data.
The cost of continuing manual file access is far higher than the cost of transferring the system to computer.
The procedure I outlined is for organisations who claim they cannot afford the cost of transferring data. For the same on-going costs as maintaining their current work practices they can implement a computer system. It is "no cost" only because they will have to incur the same cost whether or not they take it up.
In my experience up to 90% of percieved technical or financial difficulties are really based in fear of change. If someone does not want to change the way they do things you can show them a million reasons why they would be better off but they will resist change to the end.
BTW the plan I outlined was first presented to a regional NSW hospital that had end a child through poor records management.
I proposed a system that would make all patient records available instantly and securely throughout the hospital, including casualty. They used the "too expensive to convert existing records" argument so I outlined a modification of the plan above. Sullen angry looks and silence followed and the hospital still crams boxes of paper based patient files into cleaning closets.
Incidentally I offered to design and implement the system free of charge and provide the hardware needed at wholesale cost.
Sometimes you even have difficulty leading the horse to water...
DM personal opinion only