Reformers in the US have earmarked substantial resources towards encouraging the adoption of electronic health records (EHRs). However, studies have yet to explain why physicians resist adoption and why the investments resulting from a policy push may prove ineffective for improving the efficiency of healthcare delivery. I theorize that health information technology (IT) facilitates certain outcomes that bolster industry-level efficiency, but that the conventional, “fee-for-service” financing of primary care prevents many physicians from appropriating these benefits. Those physicians financing care delivery from a prepaid premium, on the other hand, are positioned to internalize what are otherwise external economies attendant to health IT investment. I find strong statistical support for this theory in a unique panel of US-practicing primary care physicians that allows us to examine health IT adoption as far back as 2001 - long before it garnered policymakers’ attention. The results imply that reformers should focus not on encouraging health IT adoption per se, but on reforms that enable physicians to internalize what are presently socialized benefits.
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