Information and Communications Technology in U.s. Health Care: Why Is Adoption So Slow and Is Slower Better?

Abstract

Politicians across the political spectrum support greater investment in health care information and communications technology (ICT) and expect it to significantly decrease costs and improve health outcomes. We address three policy questions about adoption of ICT in health care: First, why is there so little adoption? Second, what policies will facilitate and accelerate adoption? Third, what is the best pace for adoption? We first describe the unusual economics of ICT, particularly network externalities, and then determine how those economics interact with and are exacerbated by the unusual economics of health care. High replacement costs and the need for technical compatibility are general barriers to ICT adoption and often result in lock-in to adopted technologies. These effects are compounded in health care because the markets for health care services, health insurance, and labor are interlinked. In addition, the government interacts with all markets in its role as an insurer. Patient heterogeneity further exacerbates these effects. Finally, ICT markets are often characterized by natural monopolies, resulting in little product diversity, an effect ill-suited to patient heterogeneity. The ongoing process for setting technical standards for health care ICT is critical but needs to include all relevant stakeholders, including patient groups. The process must be careful (i.e., slow), flexible, and allow for as much diversity as possible. We find that waiting to adopt ICT is a surprisingly wise policy.