New medical technology improves quality of life and extends longevity, but it also accounts for most of the growth in health care spending [1, 2] and influences the health care market by shifting demand . The rate at which a new medical technology is adopted by care providers (i.e., the speed of diffusion) affects the short-term and medium-term benefits and costs. Understanding the diffusion of technology and its impact on the overall health care expenditure is essential to health care financing and insurance coverage.
Diffusion is the informal process by which innovations spread to members of a social system . It is determined by the attributes of the innovation itself, communication over time, and attributes of the social system. In Rogers' (1962) diffusion theory, a continuum of cultural norms from traditional to modern is proposed to explain how a given social system responds to a new idea across space and time . The social system's adoption of an innovation is determined by individuals' knowledge, attitudes, and behavior toward the innovation . It may be driven by information transfers , normative pressures , and network effects . Rogers subcategorized members of a social system into the innovators, early adopters, early majority, late majority, and laggards.
Incorporating Roger's diffusion theory and measuring the number of adopters into his model, Bass found that the spread of new product information resembled the spread of contagion as described in epidemiology and that was distributed through social forces to potential buyers who adopt the new product over time [9, 10].
Researchers have investigated the diffusion or adoption patterns of high-cost new medical technologies such as computer topography (CT) scans , magnetic resonance imaging (MRI) machines [11–14], neonatal intensive care units (NICU) , laparoscopic instruments [16–21], and technologies for specific diseases or surgery [22–24]. Diffusion of the expensive technologies is largely influenced by their characteristics, profitability, prestige value, familiarity, and investment costs . Other factors include organizational characteristics of the adopter, insurance reimbursement, public regulations, malpractice concerns, competitive or cooperative interactions among providers, and demographics . However, the most important factors for acquisition of new technology and frequency of use are insurance, regulation, and provider interaction .
Large quantities of less expensive items routinely purchased by hospitals may add up to a greater impact on overall costs than expensive but less utilized items . Prescription drugs are one such category of items. Although new drugs sometimes reduce the total cost of treatment , replacing older, cheaper drugs by newer, more expensive drugs accounts for a substantial portion of the rise in health care expenditures  and deserves further study.
Few studies have examined the diffusion of new drugs [24, 30–32] and the impact on health care market. Past studies have focused on pricing and quantity of pharmaceuticals, the competition between brand name products and generics [33–36], the effect of generics on the price and market share of brand name products [37–47], as well as the effect of new drug diffusion on the quality differentiation and marketing efforts [34, 48]. In contrast to macro-market analyses, little research has been conducted on new drug diffusion patterns in hospitals. Hospitals vary in size, policies, production function, market power, and input factor costs, all characteristics that can contribute to new drug diffusion. Thiazolidinediones (TZDs) are oral medications that increase insulin sensitivity and cardiovascular complications in patients with type 2 diabetes mellitus . Rosiglitazone and pioglitazone are two of such agents approved by the U.S. Food and Drug Administration in 1999. Their use spread quickly throughout the U.S, where their use to treat type 2 diabetes increased from 2.2% in 1997 to 5.4% in 2001 . In 2001, outpatient prescriptions of oral antidiabetic agents totaled 91.8 million . In Taiwan, BNHI data indicated that the total annual prescriptions for both TZDs increased from 1.42% of all anti-diabetic agents in 2001, the year the BNHI first listed them in the national formulary for reimbursement, to 10.78% in 2003 .
This study analyzed nationwide prescription claims data to characterize how a new DM drug (TZD) is adopted and utilized in different hospitals how soon the hospital starts prescribing TZD, how fast the prescription grows, and to what extent the number of prescriptions increases. We also sought to investigate whether hospital characteristics can explain the variation of diffusion.
Characteristics of health care and the pharmaceutical market in Taiwan
In Taiwan, a national health insurance (NHI) program covers the healthcare of over 99% of Taiwan's citizens. It provides comprehensive health coverage, including prescribed medications. Hospitals in Taiwan provide both inpatient and outpatient services. Under NHI, there is no gatekeeper or strict referral system, and thus patients are free to choose the health care provider. Because outpatients are usually the hospitals' main source for possible inpatients, hospitals are often motivated to compete for outpatient patients with clinics. Drugs in Taiwan are prescribed by physicians and are dispensed by hospitals or clinics. In 2007, 67.29% of NHI total medical care expenses were devoted to outpatient care, 30.14% being devoted to pharmaceuticals . Hospitals, however, claimed 61.18% of the total NHI outpatient care expense and 70.21% of the outpatient pharmaceutical expenses . In Taiwan, hospital behavior varies by hospital accreditation level, hospital capacity and organization. Hospitals accredited as medical centers usually have more than a thousand beds, while those accredited as regional and district hospitals have more than a hundred. Medical centers see more than four times and 27 times the number of DM patients on an outpatient basis than regional and district hospitals, respectively . They have also been found to be early adopters of TZD and found to have higher penetration rates than hospitals at other accreditation levels .