Health Care Finance and the Early Adoption of Hospital Information Systems

This study examines the adoption of hospital information systems (HIS), specifically focusing on the connection between the financing of health care and the adoption of these new technologies. Using a recently uncovered dataset detailing the systems installed at over 2300 hospitals, the results indicate that state price regulations slowed the adoption of these systems during the 1970’s. In contrast, hospitals increased their adoption of HIS in response to the implementation of Medicare’s prospective payment system. The evidence suggests that in the early years, these systems did not have the ability to save sufficient funds to justify their expense and adopters, in particular not-for-profit hospitals, were motivated by factors other than cost. By the early 1980’s, this had changed: hospitals with the greatest incentives to lower costs were now more likely to adopt these technologies. ∗Board of Governors of the Federal Reserve System, Washington, DC 20551. e-mail: [email protected]. The views expressed in this paper are those of the author and do not necessarily reflect those of the Board of Governors or the staff of the Federal Reserve System. Paul Zarins and the Stanford University Libraries were very kind and helpful in procuring the data for this project and I am very grateful. Many thanks as well to Frank Wolak for his help and to participants at the Stanford University Public Lunch and IO Workshop for the chance to present an earlier draft. All errors my own.