The Role of Interoperability in Hospital Digitization: Network Effects and Information Blocking∗ Working Paper

Rates of electronic information sharing and interoperability among hospitals remain low despite government investments exceeding $30 billion. Using a network economics framework, I show that low rates are driven by two factors. First, hospitals with weak market power avoid interoperability to keep patients from going elsewhere for care. Second, even if hospitals value interoperability, heterogeneous preferences over vendors can lead to sub-optimal rates if interoperability is dependent on adopting the same IT system. Policies should address disincentives for information sharing and facilitate entry of third-party adapters that enable more robust interoperability. JEL Classification: I10, I180, O33, O38