HOWEVER, the single, massive US network is actually composed of a large number of much smaller regional networks. That is, while doctors in the San Francisco Bay Area may potentially interact with healthcare system members in Wichita, Kansas, most do not actually do so. In fact, even the network of San Francisco Bay Area healthcare providers is a relatively loose network. More active healthcare sub-networks would include the UCSF healthcare network, the Stanford healthcare network, the El Camino healthcare network, the Good Samaritan healthcare network, the San Jose Hospital healthcare network, and so on.

This means that if a doctor in the Stanford healthcare network adopts electronic medical records, that won’t necessarily help make it cost effective for a doctor in the San Jose Hospital healthcare network to subsequently adopt electronic medical records. What the doctors in the San Jose Hospital healthcare network need to make it cost effective to adopt electronic medical records is for other doctors (pharmacies, hospitals, insurance companies, etc.) in the San Jose Hospital healthcare system to adopt electronic medical records.

This is where the hospital subsidies discussed in the article come in. By offering subsidies to doctors in their own local networks for adopting electronic medical records, hospitals are encouraging precisely those players who interact with one another the most to jointly upgrade to the new technology.

So what we have is that in a broad network system it’s not enough to offer general subsidies to network players to adopt a new technology. What is needed is to offer groups of players who actively transact with one another subsidies to jointly upgrade to the new system. In this way, network members will receive large enough benefits to make adoption worthwhile.

Normal.dotm 0 0 1 71 408 QuantAA 3 1 501 12.0 0 false 18 pt 18 pt 0 0 false false false Note also that the while the hospitals must incur the costs of the subsidies, they will more than make up these costs by the benefits they will generate from having active members of their healthcare community plugged into their technology network. In other words, it’s not just the doctors who realize benefits by plugging into the hospital technology system. Rather, the hospitals themselves also benefit from having the doctors plugged in. That is, the benefits accrue in both directions.