A number of studies have investigated the factors affecting health information technology(IT). However, these studies have not focused on the possibility that some products havemore value when others are using them as well. The importance of this network effect hasbeen widely recognized in IT industry organizations as well as in other sectors. However,few empirical studies have looked at the network effect in health IT adoption. This paperexamines the impact of neighbor hospitals’ IT capital adoption and IT labor employment ona hospital’s IT capital adoption, using the California Office of Statewide Health Planningand Development (OSHPD) data from 2000 to 2007. Findings show that neighborhospitals’ IT capital adoption and IT labor employment were associated with an increase ina hospital’s IT capital adoption. This network effect varied across hospital characteristics.