A number of studies have investigated the factors affecting health information technology
(IT). However, these studies have not focused on the possibility that some products have
more value when others are using them as well. The importance of this network effect has
been widely recognized in IT industry organizations as well as in other sectors. However,
few empirical studies have looked at the network effect in health IT adoption. This paper
examines the impact of neighbor hospitals’ IT capital adoption and IT labor employment on
a hospital’s IT capital adoption, using the California Office of Statewide Health Planning
and Development (OSHPD) data from 2000 to 2007. Findings show that neighbor
hospitals’ IT capital adoption and IT labor employment were associated with an increase in
a hospital’s IT capital adoption. This network effect varied across hospital characteristics.