Innovating with Health Information Technology Under Policy Uncertainty

Abstract

While the behavioral theory of the firm explains the heterogeneity of organizations’ search for new technologies in response to performance shortfalls, institutional theory illuminates isomorphic organizational responses to policy uncertainty in the institutional environment, resulting in the homogeneity of organizations’ technological choices. We suggest that these two seemingly different theoretical perspectives can jointly explain the heterogeneous or homogeneous locus of search, or the innovativeness of decisions made by organizations, for implementing information technology (IT) to address performance gaps. In the context of the U.S. healthcare industry, we focus on explaining how the innovativeness of hospitals’ decisions for health information technology (HIT) to enable clinical process management in response to their performance shortfalls may change based on the time-variant healthcare policy uncertainty in the institutional environment—specifically, within the Health Information Technology for Economic and Clinical Health (HITECH) Act. Based on a large-scale panel dataset from 3,846 hospitals in 2007-2014, we show that when cost increases relative to aspiration level, a hospital tends to explore novel technologies earlier than other hospitals to innovate its clinical processes. Furthermore, we demonstrate that with declining policy uncertainty associated with the HITECH Act from a high level, moving from the conceptualization phase to the enactment phase of the policy, a hospital’s innovativeness of deploying HIT for clinical process management increases to a greater extent in response to performance shortfalls (i.e., less uncertainty reduces the need to imitate the locus of search allowing heterogeneous technological choices). However, with further declining policy uncertainty to a low level, moving from the enactment phase to the enforcement phase of the policy, the innovativeness increases to a smaller extent in response to performance shortfalls (i.e., certain policy incentivizes the locus of search toward homogeneous technological choices). Overall, our findings demonstrate that we can provide a more holistic picture by advancing a behavioral institutional theory on how the institutional environment alters an organization’s decision to innovatively deploy HIT when addressing performance shortfalls.