Electronic Health Information Exchange, Switching Costs, and Network Effects

As in most industries, in health care, information is a competitive asset, and we expect that health care providers may have incentive to protect their information from competitors. This study aims to understand how this incentive to protect information may be a barrier to the development of a health information network. Health information networks are designed to facilitate electronic information sharing across health care providers. The electronic exchange of health information is widely considered a promising tool to improve quality, costs, and efficiency of health care. Federal and state governments have invested over $30 billion dollars to support the development of health information networks and electronic health information sharing. However, uptake has been slow suggesting that barriers to adoption exist. We first develop a model of firms' decisions to enter a health information network given this potential loss of competitive advantage. Guided by implications of the model, we conduct a two part empirical analysis to test for evidence that providers may be reluctant to join a health information network out of competitive concern. First, we conduct a national hospital-level analysis. Second, we construct a novel data set to conduct a physician-level analysis focused on New York state. In both analyses, we find supporting evidence that competitive pressure may be a barrier to entry by health care firms. We discuss implications for policy and network design given our findings