Determinants of information technology outsourcing among health maintenance organizations

We analyze the determinants of HMO information technology outsourcing using two studies. Study 1 examines the effect of asset specificity on outsourcing for development and operation activities, using HMO specific fixed effects to control for differences between HMOs. Study 2 regresses the HMO specific fixed effects from Study 1, which measure an HMO's propensity to outsource, on HMO characteristics. The data comes from a 1995 InterStudy survey about information technology organization of HMOs. While HMOs split roughly equally in outsourcing information technology development activities, they are extremely unlikely to outsource the day-to-day operation of information systems. The greater an HMO's information technology capability and the complexity of information systems supported, the less likely is an HMO to outsource. While HMOs less than two years old, for-profit HMOs, local or Blue Cross-affiliated HMOs, and mixed HMOs are more likely to outsource, federally qualified HMOs are less likely to outsource. Policy and managerial implications for the adoption and diffusion of new ways of organizing information technology, such as application service providers (ASPs), are discussed.