Electronic Discovery and the Adoption of Information Technology

Author(s): Amalia R. Miller and Catherine E. Tucker

Source: Journal of Law, Economics, & Organization , May 2014, Vol. 30, No. 2 (May
2014), pp. 217-243
Published by: Oxford University Press

Stable URL: https://www.jstor.org/stable/43774344

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 JLEO, V30N2 217

Electronic Discovery and the Adoption of Information

Technology
Amalia R. Miller*

University of Virginia and RAND Corporation

Catherine E. Tucker
MIT Sloan School of Management and NBER

After firms adopt electronic information and communication technologies, their

decision-making leaves a trail of electronic information that may be more exten-
sive and accessible than a paper trail. We ask how the expected costs of litiga-
tion affect decisions to adopt technologies, such as electronic medical records
(EMRs), which leave more of an electronic trail. EMRs allow hospitals to docu-
ment electronically both patient symptoms and health providers' reactions to
those symptoms and may improve the quality of care that makes the net impact
of their adoption on expected litigation costs ambiguous. This article studies the
impact of state rules that facilitate the use of electronic records in court. We find
evidence that hospitals are one-third less likely to adopt EMRs after these rules
are enacted. ( JEL K41, 033, 112).

1. Introduction
When firms adopt new information and communication technologies
(ICTs), they hope to increase profits by reducing communication and
archiving costs. However, they may incur hidden costs among which is
an increased likelihood of detrimental evidence being uncovered from an
electronic "paper trail." To take a classic example, in United States v.
Microsoft , 87 F. Supp. 2d 30 (D.D.C 2000), prosecutors used e-mails
sent between Microsoft executives as evidence of anticompetitive intent
toward Netscape. In this article, we explore how policies that change in the
risks and expected costs of litigation stemming from the existence of an
electronic document trail influence firms in their decisions to adopt new
technologies.

*University of Virginia and RAND Corporation. Email: armiller@virginia.edu

We thank Healthcare Information and Management Systems Society Analytics for pro-
viding the data used in this study and the RAND Institute for Civil Justice for support. We
also thank Bill Encinosa, Avi Goldfarb, Patrick O'Doherty, Doug Staiger, seminar partici-
pants at Carnegie Mellon, the Federal Trade Commission, Georgia State, Texas A&M, and
Virginia, as well as the editors and anonymous reviewers of The Journal of Law, Economics, &
Organization for useful feedback on earlier versions of this article. All errors are our own.

The Journal of Law , Economics, and Organization , Vol. 30, No. 2

doi: 1 0. 1 093/jleo/ews038
Advance Access published November 21, 2012
© The Author 2012. Published by Oxford University Press on behalf of Yale University.
All rights reserved. For Permissions, please email: journals.permissions@oup.com

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218 The Journal of Law, Economics, & Organization, V30 N2

We ask how the prospect of electronic data being used in the court
affects the decisions of US hospitals to adopt electronic medical record
(EMRs) systems. EMRs allow health providers to store and exchange
information about their patients' medical and treatment histories electron-
ically rather than using paper. EMRs can improve patient's care and
reduce administrative costs (Miller and Tucker 2011a), but their effect
on expected malpractice costs is ambiguous.
On the one hand, by automating documentation of a patient's care,
EMR systems can help to protect health providers in a malpractice case,
by documenting comprehensively and reliably that hospital protocols
were followed. By helping to prevent medical mistakes, such as dosage
errors, EMRs may actually reduce the risk of a malpractice lawsuit being
launched by reducing the risk of malpractice and adverse health outcomes.
On the other hand, EMRs include more detailed information about
patient care than traditional paper records. Therefore, plaintiff attorneys
may make extensive discovery requests for "relevant" electronic informa-
tion in medical malpractice litigation. Plaintiff access to this electronic
information can increase the probability of malpractice litigation after
an adverse medical event, and also increase the cost of trial and the
chance of a negative outcome for the defense. In a case described in
Vigoda and Lubarsky (2006) and Dimick (2007), surgery left a patient
quadriplegic. The patient's lawsuit initially focused on the surgeon's com-
petence, but it switched to focusing on the anesthesiologist's competence
after pretrial discovery, which released EMRs to the patient's attorneys.
These records contained an electronic timestamp that cast doubt on
whether the anesthesiologist was present for the entire procedure. This
anecdote illustrates the risk to health providers of EMRs being released
during discovery. An increase in information can improve patient care and
aid rebuttal in court, but it can also increase the chance that the plaintiffs'
lawyers will find evidence of wrongdoing.
To analyze whether the threat of increased medical malpractice costs
deter adoption of EMRs, we use panel data on EMR adoption by hos-
pitals from 1994 to 2007. To measure the likelihood that electronic data
will be used in medical malpractice trial proceedings, we exploit differ-
ences over time in state court procedural rules governing the scope and
depth of general electronic document discovery, or "e-discovery," in pre-
trial proceedings. E-discovery refers to the use of electronic materials in
the discovery stage of court proceedings. These rules increase the likeli-
hood of extensive electronic metadata being preserved, such as damaging
evidence of timestamps when records were accessed and modified. We find
that the enactment of such state rules decreases the propensity of hospitals
to adopt EMRs by one-third. We check the robustness of this result by
adding control variables to the main model and by employing a set of
falsification tests.
We then examine which hospitals were most deterred by these proced-
ural rules. We find that e-discovery rules hinder adoption more in states

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 Electronic Discovery and the Adoption of Information Technology 219

with more malpractice litigation stemming from allegations that could be

bolstered with data from EMRs. This finding that malpractice concerns
affects technology adoption builds on the literature in health economics
that attempts to assess how the risk of malpractice litigation affects health-
care provider choices. The bulk of this research concerns physician
responses to the malpractice environment, and considers location
(Matsa 2007) and treatment decisions (Kessler and McClellan 1996;
Dubay et al. 1999; Currie and MacLeod 2008; Avraham et al. 2012).
We also find evidence that smaller hospitals that were most deterred by
these e-discovery rules. This may be because small hospitals find it harder
to cover the fixed cost, such as specialized software and personnel proced-
ures, associated with maintaining electronic records if they face a malprac-
tice suit.
By showing that the use of electronic data in court cases can inhibit the
diffusion of healthcare IT, we also contribute to a growing literature that
examines the determinants of the diffusion of health care IT in the United
States (Kim and Michelman 1990; Devaraj and Kohli 2000, 2003; Menon
et al. 2000; Angst et al. 2008; Miller and Tucker 2009, 201 lb). The finding
that the use of electronic data in court appears to deter hospitals from
adopting EMRs has particular policy relevance now, because the 2009
HITECH Act offers incentives of roughly $44,000 per physician to pro-
mote EMR adoption.
Our findings imply that these are costs, in terms of delayed or reduced
EMRs adoption, from allowing e-discovery in the court. This does not
mean that it would be best to prevent e-discovery. There may be important
benefits from e-discovery in improving the medical malpractice system.
For example, e-discovery may identify and penalize truly negligent care.
However, from the perspective of providing incentives that promote the
adoption of new technologies, it is important to clarify the procedures
under which EMRs can be used in court cases. It may be advantageous
for medical professionals to be well-informed about how much additional
risk they will expose themselves to, rather than having them perceive those
risks as unquantifiable.

2. Background
2.1 State E-Discovery Rules
The discovery phase of a medical malpractice case starts after the plaintiff
files the lawsuit. During discovery, both the defense and the plaintiff have
the opportunity to obtain relevant information and documents from the
other parties in the lawsuit. The standard for discovery of paper records is
generally very broad. Documents are "discoverable" if they are likely to
lead to the uncovering of admissible evidence. They do not have to be
necessarily admissible at trial. Requests for discovery are generally statu-
torily predetermined requests that must be produced without objection.

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220 The Journal of Law, Economics, & Organization, V30 N2

Therefore, all parties in a lawsuit must respond to discovery requests or

face being found in contempt.
In the past decade, many states have adopted rules that govern
"e-discovery." These rules generally add electronic documents as an add-
itional class of documents that are governed by existing rules on discovery
in pretrial proceedings. This means that such materials fall, without any
room for dispute, into the class of materials that must be automatically
produced without objection in pretrial proceedings. As shown by Figure 1,
these rules are geographically diverse. The rules originate both from stat-
utes and courts. Table 1 summarizes the rules that have been enacted.
In the absence of these rules, the plaintiff's and the defendant's teams of
lawyers must hash out the use of electronic materials between themselves.
Interviews with medical malpractice attorneys to provide evidence on this
informal and undocumented process suggest that they often reach an
agreement with the other party to exclude electronic evidence from the
discovery process. Lawyers rationalize such behavior by pointing out that
without clarification from the courts about how e-discovery should be
conducted, e-discovery becomes costly and may not produce worthwhile
evidence that offsets these costs. A recent "2008 Litigation Survey of
Fellows of the American College of Trial Lawyers" (ACTL and I A ALS
(2009)) suggested that nearly 77% of the courts did not understand the
difficulties associated with e-discovery and that 87% of the trial lawyers
said that e-discovery increases the costs of litigation.
In our regressions, we use an indicator variable to signal the existence of
a state rule. In all cases, we focus on the dates the rules became effective.1
We do not exploit the variation in the wording of the rule. We did check
the robustness of our results to the exclusion of Texas, which appears to
have the least "plaintiff-friendly" rules for e-discovery of the states in our
sample, and obtained similar, if marginally higher, estimates of the effects
of e-discovery rules than before.
In 2007, there were sweeping changes to the Federal Rules of Civil
Procedure (effective December 2006) that encompassed electronic meta-
data, such as creation dates and modification dates. Though not directly
applying to state courts, there is the possibility that some state courts may
have used these new rules as a reference. As a robustness check, we

1 . Since these rules are generally changes to the court code of civil procedure, there is not a
large gap between the enactment date and the effective date as sometimes it occurs with
changes in state law. Furthermore, while these state rules often formalize and codify the
procedures that have been followed in a prior case, they do represent a discontinuity in
terms of legal practice. This is for two reasons. First, before such rules are enacted, it is
not clear whether in that state practices that have been followed in complex corporate civil
cases apply to all civil procedure. Second, while lawyers who specialize in such areas of
corporate law may be well aware of the issues of e-discovery, the enactment of such rules is
ordinarily attended by both publicity, and offers of workshops and training in matters of
e-discovery by the state bar association, which improve the ability of the broad spectrum of
the legal profession to take advantage of electronic data mining techniques.

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 Electronic Discovery and the Adoption of Information Technology 221

Figure 1 . Distribution of State E-discovery Rules in 2007.

estimate an alternative version of our main specification excluding 2007

data with similar results.
We also investigated the origin of the state rules. It would be problem-
atic for our interpretation of causal effects if these rules stemmed from
lobbying by large hospitals or medical malpractice litigation experts in
that state. A search of early case law that mentions e-discovery suggests
that rather than reflecting activity in the health sector, cases instead reflect
litigation practices in the financial sector. Banks and other financial firms
were the first industrial sector to embrace a large number of ICT-type
technologies that store electronic data. For example, Merrill Lynch's
Jonathan Eisenberg noted that in his experience, 98% of the records in
discovery cases involving Merrill Lynch are electronic (Losey 2008). An
example of this relationship between the presence of financial firms and
the enactment of state-level e-discovery rules is Zubulake v. UBS Warburg ,
217 F.R.D. 309 (S.D.N. Y. 2003), where UBS had to pay $29.2 million,
partly because they failed to store data properly. Conversations with
e-discovery experts suggest that it was the holes in the existing discovery
trial procedure guidelines exposed by Zubulake , which prompted the New
York courts to issue clarifying procedural rules in 2006.

2.2 Effects of E-Discovery on Malpractice Litigation

The impact of greater use of electronic data in malpractice cases on the net
expected malpractice costs of hospitals is ambiguous. The majority of the
EMR policy literature emphasizes that EMRs can document that hospital
protocols were followed, and consequently provide a more complete and

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 222 The Journal of Law, Economics, & Organization, V30 N2

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 Electronic Discovery and the Adoption of Information Technology 225

easily "provable" paper trail for the defense. EMRs may prevent mistakes
by standardizing care and patient histories. However, there are numerous
reasons to think that the admission of EMRs into discovery may increase
the expected malpractice costs of the hospital.
The presence of electronic data makes it more likely that a mistake, if it
were made, would be recorded. For example, metadata captures when and
whether physicians refer to a patient's history. This is a change from the
current paper-based systems, where failure to obtain past clinical history
has had to be judged based on a comprehensive review of the individual
case files. Blumenthal et al. (2006) discuss the concern that widespread use
of electronically stored information (ESI) in medical malpractice cases
introduces ambiguity in the definition of a legal "medical record" and
extends the scope of discovery.2 1
ESI also opens the possibility that even if the initially alleged error or
negligence did not occur, the plaintiff could data mine the electronic in-
formation until it found another piece of data that might indicate a mis-
take (Terry 2001). Hospitals may also fear that in the course of discovery
for a single malpractice case, the electronic information will reveal a
system-wide error in the EMR system's clinical guidelines and alerts
that would affect a large class of patients, thereby amplifying the risk
relative to paper documents.
Requests for ESI may cause problems for defendants because the meta-
data contained in the electronic record can give the impression that med-
ical records have been tampered with. This is a particular point of
vulnerability for defendants in court. One example, given to us by an
industry insider, was the case of a radiologist in Arizona who prior to a
deposition accessed the patient's record to review its contents. By doing
so, they inadvertently created a timestamp which suggested that the record
had been "modified" just prior to the deposition. In Arizona, the absence
of clear rules meant that this inadvertent electronic data were not admitted
as evidence, but legal experts say that under new state rules, this electronic
evidence of possible "tampering" could be used effectively by the plaintiff
to have medical evidence dismissed. Electronic timestamps may also reveal
inappropriate corrections to a medical record, inaccurate data entry, and
unauthorized access.
Further, if there are informal practices in a hospital, which go against
official protocol, they will also be recorded. For example, in some hos-
pitals when nurses are called away in an emergency from making regular
checks on patients recovering from surgery, they can "correct" paper re-
cords after the fact to indicate that they had made the checks. That is not
possible with EMRs. Similarly, Williams (2009) reports a case where the

2. This extension goes beyond the medical record information that hospitals are required
to provide to patients upon request under the Privacy Rule of the 1996 Health Insurance
Portability and Accountability Act (AHIMA e-HIM Work Group on Defining the Legal
Health Record 2005; AHIMA e-HIM Work Group on e-Discovery 2006).

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 226 The Journal of Law, Economics, & Organization, V30 N2

focus of a medical malpractice suit was the fact that a nurse made entries
to an electronic record after the patient had died. If the patient records had
been in paper, there would have been no way of knowing for sure when
these entries were made.
More generally, there is anecdotal evidence that e-discovery is viewed as
a burden for medical providers. For example, at the IQPC's 3rd Obstetric
Malpractice Conference, held on November 10-11, 2009 at the Swissotel
Chicago, one session described e-discovery as "an aggressive enemy lurk-
ing at the door of every hospital in the United States" and "a friend of the
plaintiff's bar," explaining that "a wealth of digital information can ac-
cumulate about a patient that is housed outside an organization's legal
medical record. Attorneys in search of additional information pertinent to
a lawsuit may view this data as containing digital Easter eggs waiting to be
discovered."3
The existing academic literature has come to mixed conclusions.
Feldman (2004) quotes survey evidence that shows that in 41 malpractice
cases, there were no reported cases where an "automated record" hindered
the defense process. He also discusses quotes from survey participants that
suggest positive legal outcomes, such as "I know of three cases where the
anesthesia record directly contributed to the anesthesiologist being dis-
missed (from the suit)." Lane (2005) points out that it would be unwise to
conclude from anecdotal evidence that electronic systems do not increase
malpractice exposure, because Feldman (2004) ignores the additional
risk created by additional data stored in the electronic record. To try to
understand how "malpractice risk" and adoption of EMRs may correlate,
Virapongse et al. (2008) sent surveys to 1 140 physicians in Massachusetts
but, after controlling for demographics, did not find a significant
relationship.

3. Data
We use technology data from the 2008 release of the Healthcare
Information and Management Systems Society Analytics TM Database
(HADB). To control for time- varying hospital characteristics, we matched
the HADB data with the American Hospital Association (AHA) survey
from 1994 to 2007. We study the initial EMR adoption decisions using the
HADB-AHA-matched samples of 3599 hospitals that had not adopted
EMRs before 1994. The hospitals in our data were generally larger than
the hospitals we could not match in the AHA data. On average, they had
7530 when compared to the 2717 average annual admissions of the
hospitals for which the HADB data did not contain information on IT

3. The full session description is available at http://www.iqpc.com/Event.

aspx?id=222598.

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 Electronic Discovery and the Adoption of Information Technology 227

adoption.4 Therefore, our estimates should be taken as representative only

of larger hospitals. Looking ahead, in Section 5, we show that smaller
hospitals respond more negatively to the presence of e-discovery laws.
Thus, it seems likely that by omitting smaller hospitals, we are understat-
ing the average impact of the potential for the use of electronic data in the
court on EMR adoption.
Table 2 describes the main variables in our regressions, including the
multiple control variables that we use to control for hospital-level hetero-
geneity. Appendix Table Al reports summary statistics for the initial year
of the sample, separately for hospitals in states that did and did not adopt
e-discovery rules by 2007. On average, the two sets of hospitals appear
quite similar.
We measure adoption of EMRs by whether a hospital has installed or
has entered into a contract installing an "enterprise EMR" system.
Installing EMRs in a hospital setting may take many years, so we define
adoption by whether or not the hospital has contracted with a EMRs
vendor to set up an EMR system in that year. This is because it is the
decision to choose to install an EMRs, which will be influenced by the
potential of electronic data in litigation rather than the EMRs' completion
date. Enterprise EMRs software provides the software skeleton that
underlies other potential add-ins, such as clinical decision support, a clin-
ical data repository, and order entry. EMRs software can therefore pro-
vide the electronic metadata, such as timestamps, file modification dates,
and user access details, which increase the amount of information avail-
able to lawyers in a medical malpractice case when compared to paper
records. Of the 3599 hospitals in our sample, 1400 hospitals adopted
EMRs during the sample period between 1994 and 2007 and 2199 had
not adopted by the end of 2007. 5 The average annual adoption rate of
EMRs among hospitals that had not previously adopted the technology
was 3.3%.
We focus on how the expected malpractice costs associated with EMRs
affect hospital adoption decisions, because the EMR system is
hospital-wide. However, malpractice cases may not be hospital-wide.
Litigation resulting from hospital care may be directed at the hospital;
at the physician and other members of the medical team as well as the hos-
pital; or at individual members of the medical team. Therefore, the
hospital adoption decision may reflect not only its direct perception of
the negative consequences of electronic data being used in the court for
itself, but also the negative consequences faced by its physicians, if the

4. Also, we do not have information on hospitals that were in operation during the sample
period but that were closed before 2007, but this represents <1% of the AHA sample. Two
hundred and four hospitals in the matched sample first appear in the AHA data after 1994.
5. Nonadopting hospitals are included in the sample for all years with available AHA data
and contribute 29,729 of the hospital-year observations. Hospitals that adopt during the
sample period are observed for an average of 8.8 years and contribute the remaining
12,377 observations.

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 228 The Journal of Law, Economics, & Organization, V30 N2

Table 2. Summary Statistics for Full Sample

Variable Mean (SD) Min Max

Adopt EMR 0.033 (0.18) 0 1

Adopt business intelligence software 0.0083 (0.091) 0 1
Adopt financial data warehousing software 0.0067 (0.082) 0 1
E-discovery rule 0.11(0.31) 0 1
Years opened 34.3 (34.4) 0 190
Staffed beds 182.9 (174.9) 3 1875
Admissions (000) 7.53 (8.12) 0.0030 98.2
Inpatient days (000) 42.7 (48.2) 0.0040 582.0
Medicare inpatient days (000) 19.2 (21.1) 0 476.9
Medicaid inpatient days (000) 8.43 (14.3) 0 302.8
Births 896.9 (1257.0) 0 16463
Total inpatient operations (000) 2.26 (2.87) 0 83.1
Total operations (000) 5.88 (6.64) 0 213.4
Emergency outpatient visits (000) 23.5 (21.8) 0 290.1
Total outpatient visits (000) 112.5 (147.2) 0 2935.9
Total payroll expenses (USDm) 35.7 (52.1) 0.037 1116.5
Employee benefits (USDm) 8.19 (12.7) 0 294.5
Total expenses (USDm) 85.0 (125.2) 0.095 2393.8
Length of stay 1.01 (0.078) 1 2
No. of doctors 15.5 (65.0) 0 2067
No. of nurses 219.4 (279.2) 0 3325
No. of trainees 19.0 (82.2) 0 1347
Nonmedical staff 608.7 (769.2) 0 12,054
PPO 0.64 (0.48) 0 1
HMO 0.56 (0.50) 0 1
Member hospital system 0.48 (0.50) 0 1
Speciality hospital 0.036 (0.19) 0 1
Nonprofit 0.60 (0.49) 0 1
Gross state product (USDtr) 0.38 (0.37) 0.014 1.81
Gross state product per capita (USD000) 32.5 (4.99) 20.9 58.8
EMR-related malpractice payouts (USDm) 0.26 (0.11) 0.022 0.92
EMR-unrelated malpractice payouts (USDm) 0.18 (0.072) 0.041 0.81
Cap punitive 0.55 (0.50) 0 1
Cap noneconomic 0.36 (0.48) 0 1
Joint + several liability 0.79 (0.41) 0 1
Contingency fee 0.39 (0.49) 0 1
No. of observations 42,106

hospital worries that this could interfere

physicians.

4. Results
We first examine the aggregate impact of rules that clarify the use of
e-discovery in the pretrial stages of medical malpractice suits on adoption
of EMRs. As described in Section 2.1, these rules increase how much
electronic information a plaintiffs lawyer may receive automatically as
part of pretrial disclosure. As such, the rules are expected to magnify the
impact of electronic information on the litigation process.

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 Electronic Discovery and the Adoption of Information Technology 229

We model hospitals as maximizing an objective function that includes

net revenues and patient outcomes, including potential costs associated
with malpractice lawsuits. Hospitals choose to adopt EMRs, if the net
benefits are positive. We model adoption of EMRs as an irreversible,
absorbing state and exclude hospitals that have previously adopted
from the sample. Examining the past years of HADB data confirms that
there are no observations where a hospital divests itself of an EMR system
without seeking a replacement. We use a discrete-time hazard model since
our survival time data are discrete (the year of adoption). Discrete survival
time models can be estimated using standard binary choice methods, if the
panel is limited to time periods for each firm when it is still at risk of the
event (Allison 1982). We use a probit specification to model adoption
decisions. Our results are robust to using a linear probability model,
a logit specification, or a Cox proportional hazards model (Appendix
Table A2).
We model the probability that a hospital i in state j adopts EMR in year
t as

Prob(AdoptEMR,y, = llE-discoveryRule^, XiJt)

= (^(E-discoveryRule^, Xijt, y)

E-discoveryRule,,, our key variable of interest is an indicator for the

presence of an e-discovery rule in that state in year i. Xijt is a vector of
hospital characteristics in year t as described in Table 2, which affect the
propensity to exchange information, y is a vector of unknown parameters,
and $ is the cumulative distribution function of the standard normal
distribution.
Robust standard errors (SEs) are clustered at the state level. This allows
for the potential correlation within states over time and between hospitals.
This robustness is especially important for our study because the policy
variation occurs at the state level (Bertrand et al. 2004). Clustering errors
at the hospital level produces similar estimates but they are somewhat
smaller for the main variable of interest.6 This suggests that clustering
at the state level provides a more conservative and appropriate test for
the impact of the state-level policies we study.
Table 3 reports our initial results. Column (1) reflects the results of our
initial panel specification that includes the full set of state and year fixed
effects. Here, the presence of a rule that facilitates e-discovery is associated
with a statistically significant 0.24 reduction in the latent variable captur-
ing the net value of adoption of EMRs. At the sample mean, this translates
to a marginal effect of e-discovery rules lowering the likelihood of adopt-
ing EMRs by 0.01 1 each year. This represents a large (one-third) decrease
relative to the average propensity to adopt 0.033 each year. These

6. Double clustering at the state and hospital level produces comparable estimates that are
significant at the p < 0.01 level.

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230 The Journal of Law, Economics, & Organization, V30 N2

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 Electronic Discovery and the Adoption of Information Technology 231

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232 The Journal of Law, Economics, & Organization, V30 N2

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 Electronic Discovery and the Adoption of Information Technology 233

estimates are identified from within-state variation in adoption rates

around the time that state e-discovery rules are put in place.
In Column (2), we add a full set of hospital- and state-level control
variables to capture differences in hospital characteristics over time.
This means that we can control explicitly for changes in hospital charac-
teristics that may be correlated with the rules. For example, if states that
were more likely to enact an e-discovery rule also had hospitals that were
likely to adopt earlier, because they were growing, then the potential for
only small hospitals to have not adopted after the enactment of the rule
could give rise to a spurious negative correlation between the enactment of
the rule and adoption in the state. However, adding all of these control
variables leaves the key effect of the e-discovery rule largely unchanged.
Many of the coefficients on the hospital-level control variables are in-
significant. Being a speciality hospital, a nonprofit hospital, a member of a
hospital system, having higher employee benefits, having longer average
patient length of stays, more emergency room visits, and relatively fewer
trainees and nurses are all linked with hospitals that are more likely to
adopt EMR.
Column (3) of Table 3 reports the results of a specification where we
control directly for changes in other laws that may affect medical mal-
practice costs. These changes may be problematic for the interpretation of
the results in earlier columns, if they are correlated with the enactment of
e-discovery. Our data on state-level tort reforms are based on an updated
version of Avraham (2006), which documents changes in state-level regu-
lations that affected caps on medical malpractice payouts, the use of con-
tingency fees, and the allocation of liability. We include separate control
variables for limits on punitive and economic damages.
The addition of tort reform has an insignificant impact on the estimated
coefficient for e-discovery rules. The e-discovery coefficient is -0.233. The
marginal effect at the sample mean is -0.011, or a one-third decrease in
the propensity to adopt, as in Columns 1 and 2. The reforms themselves
are generally unrelated to adoption of EMRs.
Column (4) of Table 3 reports the results of a specification in which we
control for differences in the level of the installed base of EMR in the
previous year for that state. This directly addresses the concern that our
results are an artifact of states that pass these rules having many early
adopters, meaning that after the rule is passed, there are few hospitals left
who actually would benefit from adopting EMRs. Although the lagged
installed-base variable itself has a positive and significant relationship with
EMR adoption, its inclusion has a negligible impact on the main estimate
of interest.
Two additional robustness checks are reported in the last two Columns
of Table 3. Miller and Tucker (2009) document the importance of privacy
regulation as a driver of EMRs adoption. Column (5) shows that control-
ling for the presence of state-level privacy laws limiting the disclosure of
personal medical information by hospitals does not alter the estimated

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 234 The Journal of Law, Economics, & Organization, V30 N2

impact of e-discovery. Column (6) shows that the main effect also remains
negative and significant after allowing for separate linear time trends in
EMR adoption for states that pass e-discovery rules during the sample
period.

4.1 Timing of Rules

To address the possibility that the enactment of e-discovery rules is
correlated with unobserved trends in technology adoption in that state,
in Table 4, we report results from a falsification exercise in which we use a
"false" adoption date for state e-discovery rules. For each state with an
e-discovery law, we create three "false" e-discovery rules passed 1, 2, and 3
years before the actual enactment date. The idea of doing such a falsifi-
cation test is that if our estimates are reflecting some change in the time
trend of adoption behavior in the states that enact rules but that is not
related to the actual rule, then the placebo will pick up some of this time
trend. For easy comparison, we report the estimate from our main model
(Column (4) of Table 3) in Column (1). In Column (2), we report estimates
from a model that includes the true e-discovery adoption date, as well as
the false dates in each of the three preceding years. The lack of a relation-
ship with the false law suggests that the changes in adoption followed
e-discovery rules rather than preceding them.7
Column (3) of Table 4 builds on these estimates to investigate the dy-
namic impact of e-discovery rules on EMR adoption. The main finding of
Column (2) is repeated in that there are no significant pre-trends leading
up to the law. There are also no significant differential trends following
e-discovery rules either. The lack of any significant coefficient for rules
starting 1, 2, or 3 years after the actual enactment date suggests that the
longer term effects of the rule on adoption rates resemble the immediate
effects. This implies that the total impact on adoption accumulates over
time, but the annual reduction shows no systematic pattern of increasing
or decreasing magnitude. Column (4) provides additional evidence for the
constancy of the incremental impact by reporting the estimated impact of
the e-discovery rules on a sample that excludes data from Illinois and
Texas, the two states with e-discovery rules in place by 2000. 8

4.2 Different Technologies

Table 5 investigates how e-discovery rules affects different types of tech-
nology. Column (1) repeats the previously reported main estimate for

7. In other estimation, when we measure separate impacts of each of the false rules in
isolation, we obtain negative point estimates that are both smaller than the main estimate
(ranging from -0.0395 to -0.0562) and statistically insignificant.
8. The immediate negative impact of the e-discovery rule on adoption is consistent with
anecdotal evidence from changes in medical malpractice insurance premiums for physicians
in Illinois around the time its rule was enacted, as reported in the Medical Liability Monitor.
Premiums increased for one insurer by 28-40% (depending on specialty and region) over the 2
years that ended after enactment, but by only 8-12% over the following 2 years.

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 Electronic Discovery and the Adoption of Information Technology 235

Table 4. Dynamic Effects and Timing of Rules

Variable Main Placebo Placebo Exclude

rules rules early rules
(1) (2) (3) (4)

False e-discovery rule: 3 years before -0.0242 -0.0234

(0.102) (0.101)
False e-discovery rule: 2 years before -0.0206 -0.0206
(0.144) (0.145)
False e-discovery rule: 1 year before 0.124 0.124
(0.112) (0.112)
E-discovery rule -0.235** -0.301** -0.313*** -0.273*
(0.109) (0.131) (0.112) (0.162)
False e-discovery rule: 1 year after 0.0617
(0.190)
False e-discovery rule: 2 years after -0.151
(0.173)
False e-discovery rule: 3 years after 0.111
(0.0967)
Observations 42,106 42,106 42,106 36,814
Log likelihood -5571.9 -5570.9 -5570.5 -4935.9

All estimates in this table are from models that include the full set of sta
set of hospital control variables (years opened, staffed beds, admissions
Medicaid inpatient days, births, total inpatient operations, total operation
tient visits, total payroll expenses, employee benefits, total expenses, leng
nurses, number of trainees, nonmedical staff, PPO, HMO, hospital sys
profit), state control variables (gross state product and gross state pr
EMRs, and tort law control variables (punitive cap, noneconomic dam
contingency fee limits). SEs clustered at the state level. *p<0.10, "p

Table 5. Effects on Different Hospital Information Tec

Variable EMR CPOE Financial data Business

warehouse intelligence
(1) (2) (3) (4)

E-discovery rule -0.235** -0.258** 0.150 0.191

(0.109) (0.119) (0.159) (0.196)
Observations 42106 46252 46180 47252
Log likelihood -5571.9 -4267.7 -2024.1 -2231.9

All estimates in this table are from models that include the full set of stat
set of hospital, state, and tort law control variables (listed in Table 4), a
the state level. "p< 0.05.

adoption of EMRs. Column (2) shows a similar negative impact of

e-discovery rules on the adoption of a related technology, Computerized
Physician Order Entry (CPOE) systems. These systems can record and
disseminate instructions for patient treatments and often include safety
features, such as error checking and clinical decision support tools (such as
automated warnings for potential drug interactions). As with EMRs, the
increased record-keeping associated with CPOEs has been identified as a
potential risk in malpractice cases where e-discovery is present (Greenberg
and Ridgely 2011). The reduction in CPOE adoption provides further

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 236 The Journal of Law, Economics, & Organization, V30 N2

evidence of a decline in clinical IT adoption following the enactment of

e-discovery rules.
In contrast, in the spirit of our previous falsification tests, in the next
two columns of the table, we report estimates from different placebo test
using alternative technologies that are unlikely to affect pretrial discovery:
Financial Data Management Software and Business Intelligence
Software. These technologies, while used in hospital record-keeping, do
not produce data that is part of a legal medical record. We found no
significant effects from state e-discovery rules on these technologies
and the point estimates are positive. This suggests that the main result
in Table 3 is not being driven by a spurious negative correlation between
e-discovery rules and healthcare IT adoption more generally.

5. Heterogeneous Effects of E-Discovery Rules

5.1 E-Discovery and Different Types of Malpractice Cases
This section explores how the effect of the e-discovery rule is mediated by
the size and nature of the medical malpractice payments associated with
practitioners working in that state. Our hypothesis is that higher malprac-
tice payments by practitioners translate into greater financial risk to hos-
pitals from malpractice, either because hospitals themselves face increased
financial exposure in medical malpractice suits or because hospitals com-
pete for physicians and would need to compensate them for increasing
their exposure to electronic data in malpractice cases. We use data from
the national practitioner databank of all medical malpractice payments.9
The files are the universe of all claims paid in the United States, but do not
include information on complaints and litigation that did not result in a
payment.10 We use payments from the previous year to predict adoption,
avoiding the potential reverse causality that could otherwise run from
adoption of EMRs to malpractice payments.
Using the three-digit allegation claim category code, we determine
whether each payment is potentially related or unrelated to EMRs.
Claims related to EMRs are from mistakes that might be prevented or
documented by EMRs. An example of a claim that could be theoretically
supported by electronic metadata in an EMR is a "failure to monitor" a
patient sufficiently. An example of a claim that could be theoretically
prevented by EMRs is a claim of a "wrong dosage" being administered
by a nurse, since EMRs theoretically remove the uncertainties introduced
by a physician's handwriting and idiosyncratic use of unit abbreviations.
Other claims in the first category include a "failure to diagnose," where
easy access to a patient's previous medical history may make diagnosis

9. Downloaded from http://www.npdb-hipdb.hrsa.gov/.

10. The practitioner databank is the most comprehensive source of malpractice payments,
with full coverage of practitioners and inclusion of both settlements and verdicts. The Jury
Verdict Research data exclude settlements and the Physician Insurer Association of America
Data Sharing Project contains only M 2% of the claims.

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 Electronic Discovery and the Adoption of Information Technology 237

easier, but a failure to use the history would also be documented and could
be used in the court. The second category of claims are those that are not
likely to be affected by EMRs. An example is "Surgical or Other Foreign
Body Retained." It is unlikely that the presence of an EMRs would affect
the likelihood of a surgeon leaving behind a piece of operating equipment
within a patient, and if the surgeon is unaware he or she has done so, it
would not be in the EMR.
The results in Table 6 show how the presence of an e-discovery rule is
mediated by the average payment in that state for a medical case for each
of these claims classes. To ensure comparability, we use a state-specific
mean standardized and centered measure of the average payment data.11
The average size of claims that are associated with practices that might be
related to EMRs has a statistically significant negative interaction with the
presence of a law. The sizes of the estimates imply that increasing the value
of EMR-related claims from its mean to a value 1 SD above the mean
increases the e-discovery coefficient by ^50% (from -0.214 to -0.325). In
contrast, unrelated claims have statistically insignificant effects on the
estimated impact of an e-discovery law. This suggests that when a hospital
is in a state where there are large medical malpractice payouts for lawsuits
that would be documented by EMRs, a rule facilitating e-discovery would
be incrementally negatively correlated with adoption. These separate ef-
fects are confirmed in Column (3) where a single model is estimated with
both types of payouts and interactions. As pointed out by Ai and Norton
(2003), care is needed when evaluating the significance of interaction terms
in nonlinear models. Results from a linear probability model, however, are
reassuringly similar.
Column (1) of Table 6 reports both a positive correlation between mal-
practice payments and adoption of EMRs in that Column and a negative
estimate of the effect of the interaction between e-discovery rules and
malpractice payments. Though this is just a correlation that may be sub-
ject to the usual confounds, one interpretation is that having an EMR
system in place can be an advantage for hospitals in documenting their
compliance with standard practices. However, this benefit is eliminated
when e-discovery rules put all electronic information by default in the
hands of the plaintiffs.
In Columns (2) and (3) of Table 6, the interaction terms between
e-discovery rules and other types of malpractice payments are statistically
insignificant. However, consistent with the relationship in Column (1),
there is a positive relationship between EMR adoption and malpractice
cases stemming from allegations that might have been prevented by EMRs
in Column (3). For unrelated allegations, there is no such association.

1 1 . We created the re-scaled variables by subtracting out the average payment amount in
the state over the entire sample period and then dividing by the state-specific standard devi-
ation across all payments in the sample period.

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 238 The Journal of Law, Economics, & Organization, V30 N2

Table 6. Different Types of Medical Malpractice Claims Mediate the Effect of

E-discovery Rules on Hospital Adoption of EMRs

Variable (1) (2) (3)

E-discovery rule -0.214** -0.200** -0.208**

E-discovery rule*EMR-related -0.111*** -0.102*
malpractice payouts
EMR-related malpractice payouts 0.0458** 0.0489**
E-discovery rule *EMR-unrelated -0.0777 -0.0120
malpractice payouts
EMR-unrelated malpractice payouts -0.00987 -0.0219
Observations 42106 42106 42106
Log likelihood -5567.9 -5570.7 -5567.3

All estimates in this table are from models that include the full set of s
set of hospital, state, and tort law control variables (listed in Table 4
the state level. *p<0.10, **p< 0.05, ***p< 0.01.

5.2 Which Hospitals Are Affected by E-Discovery R

We now consider how hospital characteristics m
between hospital EMRs adoption and the pr
We find evidence that the most statistically
various dimensions is hospital size. Table 7 p
results. The three columns summarize speci
actions with an indicator variable that measures whether or not the hos-
pital has a below median number of total admissions, expenses, and
nonmedical staff. In all cases, we find a negative interaction with whether
a hospital is small by that measure and whether a state has an e-discovery
rule in place. The largest interaction by size is the interaction with the size
of the support staff. To control for the Ai and Norton (2003) critique, we
also estimated a linear probability model with similar results.
We speculate that this result may reflect the costs and difficulties asso-
ciated with preparing electronic data for discovery for civil trial. There is
anecdotal evidence that some hospitals with EMRs attempt to gain con-
trol over this risk by engaging in costly activities, such as retaining dupli-
cate paper records in order to provide supplementary evidence in the case
that timestamps are unreliable, or purchasing expensive customized soft-
ware modules to limit the content included in the legal medical record.
Hospitals that do not employ large enough legal and IT teams may be
therefore placed at a relative disadvantage, if EMRs are brought into the
discovery process. Losey (2008) urges institutions that face substantial
e-discovery risks to establish an internal e-discovery preparedness and
response team, consisting of one or more outside attorneys who specialize
in e-discovery as well as representatives from the legal team, IT depart-
ment, key business departments as well as records and compliance units.
Such costly and complex organizational requirements may deter smaller
hospitals more. In addition, hospitals that face the prospect of e-discovery

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 Electronic Discovery and the Adoption of Information Technology 239

Table 7. Which Hospitals' Adoption is Affected by E-discovery Laws?

Variable (1) (2) (3)

E-discovery rule -0.153 -0.159 -0.149

(0.103) (0.107) (0.121)
E-discovery rule*low admissions -0.221***
(0.0853)
E-discovery rule*low total budget -0.196**
(0.0779)
E-discovery rule*low nonmedical staff -0.228**
(0.0925)
Observations 42,106 42,106 42,106
Log likelihood -5568.4 -5569.1 -5568.2

All estimates in this table are from models that include the full set of
set of hospital, state, and tort law control variables (listed in Table
the state level. "p< 0.05, ***p< 0.01.

would need to invest in additional storage and

prevent unintentional data loss.

6. Conclusion
This article documents how the presence of state e-discovery laws affects
the adoption of EMRs. On the one hand, it seemed possible that the use of
electronic records might facilitate a hospital's defense, by providing a
broader and more robust standard of documentation. On the other
hand, it seemed possible that the increase in the breadth of evidence and
the possibility of "data-mining" by the plaintiff's lawyers might increase
hospitals' perception of the potential for negative consequences of elec-
tronic medical data being used in the court.
Our empirical analysis suggests that state rules that clarify the use of
electronic evidence in discovery are associated with a one-third decrease in
adoption of EMRs by hospitals. The implication of this finding is that
there may be previously ignored welfare effects from the risk and expected
cost of litigation on the spread of certain new technologies that store
electronic data. Although we have focused on the adoption of health
IT, this deterrence effect may be present in other sectors of the economy
where companies make choices about converting records from paper to
electronic methods of storage.
There has been a substantial federal push to ensure widespread adop-
tion of EMRs, providing financial incentives of approximately $44,000 per
physician under the 2009 HITECH Act. However, such policies have as of
yet not addressed this issue of the potential use of electronic data in mal-
practice cases when designing incentives. Our research suggests that hos-
pitals' concerns about the use of electronic data in malpractice cases may
limit the effectiveness of such financial subsidies. If the efforts to promote
adoption of EMRs are to be effective, they should be coupled with efforts

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 240 The Journal of Law, Economics, & Organization, V30 N2

to streamline and guide the use of electronic data in court proceedings, to

reduce hospitals' perceived costs from malpractice claims enabled by
EMRs.
Several limitations are worth noting. First, we only study the effect of
e-discovery rules on the adoption of EMRs, not how they are actually
used. It is possible that hospitals that fear litigation end up not fully using
their EMRs, for fear of future data mining. If this is the case, then our
estimates may understate the extent of the problem. Second, when a state
enacts an e-discovery rule, the local medical and legal press commonly
publish articles that address issues of e-discovery and the potential costs
they entail. We recognize that, therefore, our regressions measure the
effect of the enactment of an e-discovery law (and the attention that sur-
rounds the enactment) as opposed to the pure causal effect of an unpub-
licized change in the wording of the law.

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 242 The Journal of Law, Economics, & Organization, V30 N2

Appendix A

Table A1. Summary Statistics in 1994 by E-Discovery Rule in 2007

No rule Rule
Mean (SD) Mean (SD)

Adopt EMR 0.011(0.10) 0.017(0.13)

E-discovery rule 0 (0) 0 (0)
Years opened 35.2 (34.6) 37.2 (36.7)
Staffed beds 189.1 (168.3) 206.4 (198.2)
Admissions (000) 6.89 (6.89) 7.07 (7.49)
Inpatient days (000) 42.5 (44.5) 50.1 (58.0)
Medicare inpatient days (000) 19.3 (20.1) 22.3 (24.8)
Medicaid inpatient days (000) 7.99 (13.3) 10.7 (20.2)
Births 875.9 (1205.0) 920.3(1226.6)
Total inpatient operations (000) 2.24 (2.67) 2.28 (2.82)
Total operations (000) 5.29 (5.86) 5.09 (5.58)
Emergency outpatient visits (000) 20.5 (18.8) 20.5 (18.9)
Total outpatient visits (000) 83.7 (100.5) 86.8 (110.5)
Total payroll expenses (USDm) 25.8 (32.6) 29.4 (42.5)
Employee benefits (USDm) 5.83 (8.00) 6.55 (10.1)
Total expenses (USDm) 60.0 (78.6) 64.6 (91.4)
Length of stay 1.01 (0.086) 1.01 (0.100)
No. of doctors 10.2 (42.3) 13.7 (51.3)
No. of nurses 198.1 (234.3) 205.4 (256.4)
No. of trainees 16.1 (70.3) 22.7 (87.1)
Nonmedical staff 559.7 (642.9) 612.7 (783.0)
PPO 0.57 (0.50) 0.59 (0.49)
HMO 0.45 (0.50) 0.49 (0.50)
Member hospital system 0.40 (0.49) 0.36 (0.48)
Speciality hospital 0.030 (0.17) 0.046 (0.21)
Nonprofit 0.63 (0.48) 0.61 (0.49)
Gross state product (USDtr) 0.27 (0.27) 0.34 (0.21)
Gross state product per capita (USD000) 28.1 (2.92) 30.4 (4.19)
EMR-related malpractice payouts (USDm) 0.18 (0.065) 0.20 (0.057)
EMR-unrelated malpractice payouts (USDm) 0.12 (0.049) 0.16 (0.052)
Cap punitive 0.35 (0.48) 0.52 (0.50)
Cap noneconomic 0.37 (0.48) 0.042 (0.20)
Joint -h several liability 0.64 (0.48) 0.92 (0.28)
Contingency fee 0.40 (0.49) 0.40 (0.49)
No. of observations 1092 2303

The sample for this table excludes the 204 hospi

in AHA surveys after 1994.

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 Electronic Discovery and the Adoption of Information Technology 243

Table A2. Robustness to Alternative Estimation Models

Linear probability model Logit model Cox proportional

hazards model

E-discovery rule -0.0157*** -0.526*** -0.498**

(0.00457) (0.169) (0.254)
Observations 42,106 42,106 42,106

All estimates in this table are from models that include the full s
set of hospital, state, and tort law control variables (listed in
eses. *p<0.10, **p< 0.05, ***p<0.01.

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