Diffusion of Innovation

Determinants of the Diffusion Rate

It takes time for health care providers to widely adopt a new innovation. Increases in the proportion of firms that already use an innovation can be expected to raise the adoption rate. Implementing a new health technology involves risk. Perceived risk seldom disappears after only a few providers adopt the technology. Profitability of using a new technology is viewed at first with considerable uncertainty. As more information becomes available and experiences accumulate, risk associated with using a new technology declines. Innovations differ in the time required to cut risk of use to an acceptable level. When a large proportion of health care providers adopt the technology, this signals to others that the innovation will benefit both the patient and practice. Competitive pressures force risk adverse providers to consider the innovation more favorably. The adoption process tends to build on itself, at an increasing rate, until most potential adopters have acted. Resource availability and risk tolerance dictate an upper limit on the proportion of providers that will accept a new innovation. As this upper limit is approached, adoption rate tends to slow.

Health care providers are more likely to adopt an innovation if it is expected to boost profits by raising revenue relative to costs. The more profitable an investment in technology is relative to others that are available, the greater is the chance that profitability estimates will be high enough to compensate for risks associated with use of the new technology. Firms adopt a new technology when the present value of future profits associated with the innovation is positive. As the relative profitability of this technology grows, others respond more quickly. Waiting too long may result in a loss of market share that may be difficult to regain.

Adoption rates tend to be smaller for innovations that require relatively large investments. Providers are more cautious before committing themselves to products entailing large financial commitments. Financing becomes a challenge, and payoff periods increase with the size of initial outlays. This leads to the expectation that larger providers will introduce new techniques and smaller ones will follow as both risk and investment requirements associated with the technology decline over time.

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