The Impact of Privacy Regulation and Technology Incentives: The Case of Health Information Exchanges

Health information exchanges (HIEs) are healthcare information technology efforts designed to foster coordination of patient care across the fragmented U.S. healthcare system. Their purpose is to improve efficiency and quality of care through enhanced sharing of patient data. Across the United States, numerous states have enacted laws that provide various forms of incentives for HIEs and address growing privacy concerns associated with the sharing of patient data. We investigate the impact on the emergence of HIEs of state laws that incentivize HIE efforts and state laws that include different types of privacy requirements for sharing healthcare data, focusing on the impact of laws that include requirements for patient consent. Although we observe that privacy regulation alone can result in a decrease in planning and operational HIEs, we also find that, when coupled with incentives, privacy regulation with requirements for patient consent can actually positively impact the development of HIE efforts. Among all states with laws creating HIE incentives, only states that combined incentives with consent requirements saw a net increase in operational HIEs; HIEs in those states also reported decreased levels of privacy concern relative to HIEs in states with other legislative approaches. Our results contribute to the burgeoning literature on health information technology and the debate on the impact of privacy regulation on technology innovation. In particular, they show that the impact of privacy regulation on the success of information technology efforts is heterogeneous: both positive and negative effects can arise from regulation, depending on the specific attributes of privacy laws.