Information and firm boundaries: Do hospitals with employed physicians use more health IT?

Joint investment in health information technology (IT) and employment of physicians by hospitals (vertical integration) holds the promise for better coordination between hospitals and physician practices outside of hospitals. Also, physician resistance has been identified as a significant obstacle to hospital adoption and implementation of health IT such as electronic medical records (EMRs) and computerized provider order entry (CPOE)—tools which have been demonstrated to enhance patient safety in some settings. Employment of physicians may provide hospitals with more effective administrative controls over physician behavior regarding health IT use and with better means of capturing financial benefits from better coordination with the ambulatory setting, thereby making health IT adoption more attractive to vertically integrated hospitals. By investigating the relationship between hospital-physician integration and hospital use of health IT, this study enhances our current understanding of the organizational drivers of health IT adoption. The results provide evidence that hospitals employing salaried physicians (the integrated salary model or ISM) are more likely to adopt health IT than hospitals that do not employ any of their physician staff. Using cross-sectional variation in state laws which prohibit hospitals from employing physicians (corporate practice of medicine laws), I am able to control for unobserved variables which may be correlated with both integration and IT adoption and would otherwise bias direct estimation of the relationship between these two phenomena. While controlling for omitted variables using two stage least squares regression, the results indicate that hospitals employing physicians have greater adoption of health IT.