Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records

TLDR

Electronic medical records enable digital storage and exchange of patient data, but their adoption depends on legal privacy protections that can either encourage or hinder hospitals. The study quantifies how state privacy regulations affect the diffusion of electronic medical records. State privacy rules that limit hospital release of health information cut overall EMR adoption by more than 24%, likely by suppressing network externalities.

Abstract

This paper quantifies the effect of state privacy regulation on the diffusion of electronic medical records (EMRs). EMRs allow medical providers to store and exchange patient information using computers rather than paper records. Hospitals may be more likely to adopt EMRs if they can reassure patients that their confidentiality is legally protected. Alternatively, privacy protection may inhibit adoption if hospitals cannot benefit from easily exchanging patient information. We find that state privacy regulation restricting hospital release of health information reduces aggregate EMR adoption by hospitals by more than 24%. We present evidence that suggests that this is due to the suppression of network externalities.