Productivity-raising technologies tend to diffuse slowly, particularly in the health care sector. To understand how incentives drive adoption, I study a technology that generates revenue for hospitals: the practice of submitting detailed documentation about patients. After a 2008 reform, hospitals were able to raise their total Medicare revenue over 2% by always specifying a patient’s type of heart failure. I find that hospitals only captured half of this revenue, indicating that large frictions impeded takeup. The key barrier is a principal-agent problem, since doctors supply the valuable information but are not paid for it. Exploiting the fact that many doctors practice at multiple hospitals, I find that approximately two-thirds of the dispersion in adoption reflects differences in the ability of hospitals to extract documentation from physicians. Adoption is also robustly correlated with the use of inexpensive survival-raising standards of care, suggesting that principal-agent problems drive disparities in quality more generally. These findings highlight the importance of agency conflicts in explaining variations in health care performance.
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