Without significant support from the government and the private sector alike, the creation of Internet-based clinical-information networks—a longtime dream of many health care experts—faces serious challenges. McKinsey research shows that to build and operate such networks profitably, large health care institutions would have to spend $2.2 million annually. Only the most financially sound hospitals could afford such expenditures.¹

Over the past ten years, several high-profile yet unsuccessful efforts have attempted to use medical technology to link groups of patients, physicians, hospitals, and other providers. These networks, also known as community clinical-data exchanges, are intended to facilitate the sharing of digital medical records, laboratory results, prescriptions, and insurance information (Exhibit 1). They have been inspired by the belief that up-to-date, clear, and easily transmittable information—accessible to doctors and patients no matter what their location—would cut the number of medical errors, improve the quality of clinical care through the more consistent practice of evidence-based medicine, and save money by making processes more efficient.

Potential members of such networks have been discouraged, however, by their expense and by the disincentives facing first movers. Indeed, only about 13 percent...