A Multi-Level Model of Institutional Innovation and Knowledge Creation Capabilities: Insights From the Development of Taiwan’s Nation Health Insurance

Abstract

This study proposes a multi-level model of institutional innovation in the healthcare sector—in other words, field-level institutional change pressures that start as network-level institutional innovation by hospitals and government for their organizational performance, with an emphasis on the effect of organizational-level construct-knowledge creation capabilities. A case study using in-depth interviews and a historical inquiry approach has been used to qualitatively analyze our cases during the development of Taiwan’s National Health Insurance (NHI). Our results propose a multi-level explanation of institutional innovation by showing how field-level institutional change pressures can stimulate the government’s institutional innovation at the network level. Moreover, knowledge creation capabilities may positively influence the government hospitals’ ongoing institutional change pressures induced institutional innovation activity for their performance at the organizational level in an institutional setting. This study contributes to health organization management researchers and administrators by developing explanations of institutional innovation and creating a much-needed multi-level insight into hospital behavior in the highly institutionalized healthcare sector.

What do we already know about this topic?

Recent health services research has shifted its focus toward examining how institutional environments shape organizational forms and practices, with increasing recognition of the constraints and support provided by normative, cognitive, and cultural factors. However, there remains a dearth of studies exploring how changes in the institutional environment impact organizational processes and the establishment of new institutions in the healthcare sector.

How does your research contribute to the field?

This study contributes to health organization management researchers and administrators by developing explanations of institutional innovation and creating a much-needed multi-level insight into hospital behavior in the highly institutionalized healthcare sector.

What are your research’s implications toward theory, practice, or policy?

The multilevel model proposed in this paper theoretically illustrates how institutional innovation can be initiated at the network level, addressing new institutional complexity, and responding to government pressure for institutional change in the healthcare sector. This confirms its impact on hospital performance while also elucidating the role of knowledge creation capabilities in enabling core mechanisms of institutional change and facilitating stress-driven innovation. In practice, hospitals with a higher degree of institutional innovation can achieve superior performance and gain competitive advantages. Furthermore, these hospitals can enhance their institutional innovation by enhancing their knowledge creation capabilities.

Introduction

Amid the rising death toll from the ongoing COVID-19 pandemic, the highly institutionalized healthcare sector faces major “hyper-upheaval” that will require radical change and institutional innovation to meet the challenges posed by the pandemic. ¹ Institutional innovation refers to the process of creating and changing institutions through collective action involving partisan actors with conflicting views. It comprises 4 institutional change processes in a collective action model of institutional innovation: framing contests are ongoing battles within organizational fields and social movements over the interpretation of shared meanings and institutional arrangements, constructing networks involves organizing relationships among actors in an institutional environment to enable collective action and foster social change, enacting the institutional arrangements involves establishing and implementing new structures within a specific context by change agents, and collective action processes involve strategic efforts by change agents to gain support for legitimizing social or technical innovations within institutions. ² Managers discover the value of effectively managing change in this institutional environment. The collective action process unfolds as diverse actors seek to influence institutional change; an illustration is Taiwan’s Bureau of National Health Insurance (BNHI) signing self-management agreements with hospitals post-2005 to coordinate and monitor medical behavior.^2,3 These processes illuminate dynamic interactions in shaping healthcare institutional innovation.

Weber and Waeger ⁴ have recently refocused on how institutional environments influence organizational forms and practices. The impact of normative and cultural cognitive factors on organizations is gaining increasing recognition, with less understanding of how and why the institutional environment changes and its impact on organizational processes and the establishment of new institutions. ⁵ Institutional change refers to changes in the structure, values, or state of an institution over time that mark its evolution.^1,2 The existing literature suggests that institutional change should be regarded as a process of institutional innovation, combining the creation, change, and distribution of institutions.^2,6,7 Scott ⁸ proposes that institutional change marked by the decline of existing beliefs and procedures is associated with the emergence of new beliefs and procedures, portraying the creation of new institutions as a process of debate and politicking between different points of view. ² As a result of deinstitutionalization, organizational actors face constant pressures to act as the drivers of institutional change on institution-building to effectively understand, respond to, and adapt to these changes in the environment, underlining the importance of developing the capabilities of joint activities to build institutions. For example, Oliver ⁹ identified 3 institutional change pressures for new institutions: functional pressures refer to technical considerations that challenge the effectiveness of established organizational practices, political pressures refer to the forces that challenge the legitimacy and utility of established institutional practices within an organization, and social pressures refer to societal factors that gradually erode established organizational practices.

No matter how deinstitutionalization pressures are mainly functional, political, or social naturally, they will not inevitably run to a collapse in institutional rules. ⁷ Instead, the effects of the institutional change process are likely to be impacted by context-specific factors. Oliver ¹⁰ combined the resource-based view with the institutional theory and argued that the competitive advantage of an enterprise stems from its ability to manage the institutional background of resource decision-making. Accordingly, knowledge creation capability refers to the process by which existing organizational knowledge is exchanged and combined by the organizational members to obtain new organizational knowledge, it comprises access to parties, value anticipation, and combination capability resting on the healthcare organizational ability to gain opportunities to interact with experts, to let organizational members to anticipate that interaction is valuable, and to combine and exchange prevailing knowledge,^11,12 as a dynamic knowledge resource that affects organizational outcomes. Thus, in this study, clarifying the role of the knowledge creation capability of the hospital is crucial to understanding the healthcare institutional innovation process and hospital performance, especially the hospital evaluation in terms of structure, process, and outcome assessments.^2,7,11

The Need to Consider a Multi-Level Model of Institutional Innovation in Healthcare

This study provides several research contributions and identifies theoretical gaps in the following 4 points. First, the review of the literature suggests that this is the first study to link institutional change pressures to institutional innovation and its effect on hospital performance. Institutional theory has risen to prominence as a prevalent and powerful explanation for both individual and organizational action. However, institutional theory has often been critiqued as mostly used to explain both the persistence and the homogeneity of phenomena although its scope has surely been extended. This research has prolonged the role of institutional theory by studying it concerning institutional innovation, ² institutional change pressures, ⁷ knowledge creation capability, ¹¹ and hospital performance in the healthcare sector. Second, although Dacin et al, ⁷ and Hargrave and Van de Ven ² have clarified the drivers of institutional change and the process of institutional innovation, how these institutional change sources impact the institutional innovation process and the effect of institutional innovation on organizational performance is still open to questions. Moreover, although Oliver ¹⁰ proposed a model of sustainable competitive advantage that combines resource-based and institutional factors, he did not specify what resource-based factors may facilitate sustainable competitive advantage in an institutional context. To fill this gap, according to Smith et al, ¹¹ we adopt knowledge creation capability as a dynamic knowledge resource that may impact the institutional innovation process and the hospital performance. Third, this study contributes to innovation management research in healthcare by providing a conceptual model for describing and evaluating a hospital’s institutional innovation and its relationship to hospital performance through the effects of institutional change pressures and knowledge creation capability. Healthcare management researchers have begun to study the institutional change in healthcare settings ⁵ and present important evidence on the significance of hospital structure innovation in an institutional environment. ⁶ However, little is known about why and how the new institution is created within the hospital for its performance in the highly institutionalized healthcare environment. Finally, descriptions of institutional innovation have primarily emphasized field-level practices, which have been criticized for disregarding its multi-level interaction nature.^13,14 To fill this theoretical gap and illuminate the institutional innovation practice in the healthcare sector, this study discovers how field-level effect of institutional change pressures on the network level of government-industry interaction induced institutional innovation, and organizational-level hospital performance. Therefore, theoretically, we must develop a multi-level institutional innovation model for hospitals to understand the determinants, capability, and process of institutional innovation by integrating the knowledge-based view and institutional theory. Accordingly, this study considers 4 research questions:

1. What is the effect of the institutional change pressures exerted by the government on the institutional innovation of government-industry interaction?

2. How do the hospital’s knowledge creation capabilities influence the institutional innovation processes of government-industry interaction in the healthcare sector?

3. How does the institutional innovation process of government-industry interaction affect hospital performance?

4. How do the hospital’s knowledge creation capabilities influence hospital performance in the healthcare sector?

Method

This study applied a case study to analyze the complex development of NHI in Taiwan using in-depth interviews and historical analysis.^15,16 Case study methods are suitable for studying the dynamics of system change, especially when complex healthcare sectors require multiple stakeholder perspectives.^16,17 While in-depth qualitative information obtained from a small number of case studies does not yield statistical generalizations from a sample to a larger population, case studies allow investigators to draw a range of descriptive inferences. ¹⁸ It is also useful for research that attempts to capture the uniqueness of a case using a narrative approach rather than using it as an empirical generalization basis for variable analysis. Therefore, the main reason for the use of case studies in this study is that institutional innovation in the healthcare field is a relatively complex phenomenon with few academic studies, especially the multi-level interaction process between the government, healthcare networks, and hospitals. Taking the healthcare industry as a research context, we investigate how hospitals respond to the government’s institutional change pressures that stimulate heterogeneity in institutional innovation. Using historical analysis of secondary data, historical papers, and records, we divide this process into stages to understand institutional change and innovation, a common approach in the study of institutional change. ¹⁹ In-depth interviews provide contextual insights that enhance a multi-level model reflecting the institutional innovation process in Taiwan’s healthcare sector and its impact on hospital performance. ¹⁶

Research Setting and Level of Analysis

Taiwan’s healthcare sector is an outstanding context for such research for the subsequent causes. First, Krugman, ²⁰ the Nobel Prize winner, argued that Taiwan’s NHI may provide important insight into the healthcare sector in the United States. NHI powerfully controls Taiwan’s health care system. Although the NHI program has achieved equal access for people since 1995, Taiwan’s health delivery system underwent some changes in the middle of the 1990s. For example, since 1995, the limitation of the NHI payment system has made hospital managers control their costs and develop self-pay health services. Second, The “2025 White Paper on Health and Welfare Technology Policy” emphasizes goals like enhancing electronic medical records (EMR) and developing Personal Health Records (PHR). In 2014, Taiwan’s Ministry of Health and Welfare (MOHW) initiated the Taiwan Health Cloud Plan to establish a seamless health environment leveraging Taiwan’s robust information technology infrastructure of NHI database. The aim is to create a convenient personal health management system and promote collaboration among medical institutions and service providers. Amidst the COVID-19 pandemic, telemedicine surged, leading to plans to transition from EMR to PHR using government-set standards. Regulatory amendments, including third-party escrow for cloud-based EMRs, aim to boost data exchange and innovation. This tendency has generated enormous wishes and chances for institutional innovation.

This study emphasizes the multi-level interaction process of institutional innovation and hospitals’ performance in Taiwan’s healthcare sector. The healthcare organizational field level, government-hospitals interaction network level, and case hospital level were chosen as the research cases because they showed substantial institutional innovation. The healthcare organizational field includes governments that utilize institutional change pressures and a government-hospital interaction network that impacts institutional innovation. The organization-level hospital cases are constrained in the health care organizational field, trying to achieve institutional innovation for their performance, and influenced by knowledge creation capabilities through the institutional innovation process. Thus, these phenomena demonstrate their distinctive nature of multi-level interactions and that micro phenomena often emerge through the interaction and dynamics of higher-level entities. ²¹

Data Source

We collect the data and analyze the major historical descriptions of the development of Taiwan’s healthcare sector and related health policy evolution during 1950 to 2021. The qualitative data were collected from archived information and semi-structured interviews to facilitate triangulation. First, we collect the secondary data for the period 1950 to 2021 from several historical archives, such as the MOHW website, news reports about Taiwan’s health policy, institutional innovation events from hospitals’ official website, Taiwan’s public health policy from Taiwan Public Health Annual Report, hospitals’ annual reports, and publications from Taiwan Hospital Association (THA), to compare organizational-level signal against network and field-level evidence of institutional innovation. Second, the interviews shaped the valuable qualitative data from 2019 to 2021. We interviewed several administrators in Taiwan’s healthcare sector and academic scholars who specialize in the analysis of the healthcare sector. The entire sample contains 20 informers. There were 12 male and 8 female informers, and 14 of the informers either had a master’s degree or PhD. They stand for 6 hospitals, 3 universities, 2 government councils, and 2 research centers (Table 1).

Table 1.

Sample.

Informant	Case type	Position
1	Hospital: Case A	Physician
2	Hospital: Case B	Vice President/Physician
3	Hospital: Case C	Physician
4	Hospital: Case D	Vice President/Physician
5	Hospital: Case E	President/Physician
6	Hospital: Case E	Director/Physician
7	Hospital: Case F	President/Physician
8	Hospital: Case F	Vice President/Physician
9	Research institute: Case G	Researcher
10	Research institute: Case H	Researcher
11	University: Case I	Associate Professor
12	University: Case I	Assistant Professor
13	University: Case J	Professor
14	University: Case J	Associate Professor
15	University: Case J	Professor
16	University: Case K	Professor
17	Government council: Case L	Advisory Committee
18	Government council: Case L	Advisory Committee
19	Government council: Case M	Advisory Committee
20	Government council: Case M	Advisory Committee

The semi-structured interview questions focused on the role of informants in the institutional innovation process under the influence of the development of NHI, including supporting NHI policy reform by applying knowledge creation capability to make the institutional innovation successful.

For example, questions included:

• How do the external pressures or factors affect the institutional innovation of hospitals?

• What capabilities, processes, or activities can be considered as organizational knowledge creation in hospitals?

• How does the innovation process work when you interact with the government?

• Overall, how does your institute effectively carry out institutional innovation?

Research Analysis Procedures

In the historical inquiry analysis, 3 procedures were followed. Firstly, historical incidents were chronologically organized from 1950 to 2021, gathering evidence on the organizational field’s development, major cases, and consequential impacts from historical archives (Figure 1). ²² This phase emphasizes the institutional change pressures and potential causes leading to innovation. Secondly, data deviations across historical periods were examined, delineating the institutional innovation process in case hospitals and the government-hospitals network in 4 phases. Lastly, the healthcare institutional innovation process was explored, focusing on sources of change pressures, hospital innovation, and its consequences. Following Dacin et al’s ⁷ frameworks: sources, responses, and processes of institutional change and prior studies viewing institutional change as a process of institutional innovation, involving creating, changing, and distributing institutions,^2,6 the 4 periods were established, the establishment, turbulence, and collapse of old institutions (1950-1994), the creation of new institutions (1995-2001), the transformation of institutions (2002-2015), diffusion of a new institution (2016-2020), and the impacts on hospital performance. This comprehensive approach illuminates the healthcare sector’s dynamic institutional innovation over time (Figure 2). ²³

Figure 1.

Quantity development of hospitals and clinics in Taiwan (1989-2020).

Figure 2.

The proposed multi-level model of institutional innovation in the healthcare sector.

In an in-depth interview procedure, informers were extensively questioned about the multilevel causes, processes, and consequences of institutional innovation in the healthcare sector. The interviews lasted an average of 1 hour and were recorded verbatim. Data collection continued for 20 weeks until theoretical saturation was achieved to ensure the identification of attributes, components, and associations. ²¹ The interviews yielded 80 pages of transcript which were iteratively analyzed and coded based on a conceptual framework. ¹⁶ The pattern-matching method along with flexible specification enabled generalized classification to support the study’s claims (Table 2). The theoretical structure and illustrative citations validate the primary framework derived from the in-depth interviews while contributing to a comprehensive understanding of healthcare institutional innovation in Taiwan. ²⁴

Table 2.

Theoretical Constructs and Illustrative Quotes.

Theoretical constructs	Illustrative quotes
Institutional collapse of old institutions	“Before the formation of NHI in 1995, Taiwan had 14 different public insurance structures, each including a specific group of people. The majority of the uninsured people were children under age 14 and adults older than age 65, whose need for health care is the highest.” (Information 17) “The turbulence of diversified health insurance raises the health inequality issue, the government needed to face the fact at that time.” (Information 20) “Since Taiwan eliminated martial law in 1987, the country’s opposition Democratic Progressive Party (DPP) has speedily reinforced its position against the then-dominant Chinese Nationalist Party (CNP) under the stress of losing elections, National Health Insurance (NHI) bill was submitted to the Executive Yuan in 1993 by CNP and then NHI bill was passed on July 19, 1994.” (Information 18)
Institutional change pressures	“Taiwan Hospitals earn their profits from a Global Budgeting System (GBS) established by the Bureau of National Health Insurance (BNHI); unlike GBS in many other countries, Taiwan’s hospitals obtain hospital-specific budgets under GBS, we need to follow the rules of GBS.” (Informant 19) “Whether fee-for-service or diagnosis-related groups (DRGs) payment modes, it is necessary to pay attention to the procedures set by the BNHI.” (Informant 11) “There are three BNHI-set strategies for hospitals to ensure quality of care, first, payment incentives, second, claims management and review, third, information-sharing and transparency.” (Informant 16) “We believe that GBS may slow down hospital claims for medical expenses.” (Informant 12) “In Taiwan, I think the most powerful tool to control the increasing expenditure of health care is GBS set by BNHI.” (Informant 14)
Institutional innovation	“MOHW and Joint Commission of Taiwan (JCT) also advanced Shared Decision Making (SDM) training courses and promoted the Medical Decision Aids Movement to facilitate health care institutions to implement the SDM procedures and stimulate both the usage and the improvement of patient decision aids.” (Informant 9) “After negotiation with professional associations and Taiwan Hospital Association (THA), a NHI PharmaCloud system was implemented throughout healthcare sector in 2013. It is a platform to manage all the insured’s prescriptions and to provide timely and comprehensive medication information to a wide range of healthcare providers who have contracted with the NHI. It has changed the traditional way of diagnosis for physicians.” (Informant 15) “Although there were conflicting points between BNHI and hospitals, the BNHI launched a platform to offer transparent information on healthcare quality to inspire hospitals for health quality improvement in 2005.” (Information 10)
Knowledge creation capabilities	“The cooperative clinical meeting by numerous departments in the hospital diversifies the knowledge worker’s knowledge. Some national or international healthcare conferences will be held to facilitate knowledge sharing inter-organizationally or internationally. These meetings raise the accessibility of knowledge for the hospital.” (Information 2) “To inspire their member to publish academic journals is an important hospital’s R & D policy. Due to the number and impact of published papers that have become a standard for hospital’s evaluation, they naturally become the criteria of promotion and resource deployment.” (Information 3) “It seems that communication in the hospital becomes easier and more efficient when our team member got or is getting an MBA degree. The consensus of cost containment is getting critical under the pressure of GBS.” (Informant 6)
Hospital performance	“There are various indicators to measure hospital performance: quality dimension, operational dimension and financial performance dimension.” (Informant 1) “I think the performance indicators commonly used in hospitals are summarized as follows : (1) financial performance indicators, such as activity, flow, return on assets, interest rate, etc. (2) Business performance indicators, such as occupancy rate, average hospital stay, bed turnover rate, productivity, unit output cost, etc. (3) Quality performance indicators, such as mortality rate, infection rate, patient satisfaction, etc.” (Informant 8) “The evaluation method of hospital operating performance is usually based on financial aspects and non-financial aspects of business performance evaluation, respectively, medical service quantity, medical service quality, and teaching research.” (Informant 3) “According to JCT ‘s Hospital Evaluation indicators, hospital performance is generally accessed by structure, process and outcome indicators.” (Informant 4)

Results

Establishment, Turbulence, and Collapse of Old Institutions (1950-1994)

In the 1950s, Taiwan’s initial public health insurance system was established upon the arrival of the Chinese Nationalist Party government. However, subsequent implementations lacked proper planning, resulting in the development of over 14 distinct insurance systems for various groups such as the military, educators, farmers, and government employees—a period termed professional dominance. State-sanctioned professional bodies controlled service provision, emphasizing healthcare quality determined by providers. Nonetheless, disparities in insurance standards created an unjust system, impacting healthcare accessibility and resource efficiency, and potentially destabilizing institutions. Eventually, national intervention led to the integration of disparate systems into the National Health Insurance (NHI) framework.

Thus, in the early period (1950-1994), the professional-led institutional logic of Taiwan’s health policy collapsed, triggering government-driven institutional change pressures (social, functional, and political pressures) at the field level. Informant 6 note that this shift indicates the influence of political dynamics on the process of institutional change.

In the 1950s, there were more than 14 different insurance systems, each with different standards, leading to unfair health care access and ethical issues among health care providers, especially those who were not wealthy. The Government used its powers to reform public health institutions, transitioning from various insurance systems to the establishment of a national health insurance system in 1995. The evolution of public health insurance in Taiwan during this period reflects the important role of the government’s political influence. (Informant 7)

Consequently, proposition 1 has been suggested:

Proposition 1: The collapse of old institutions will stimulate institutional change pressures excreted by the government in Taiwan’s healthcare sector.

Creation of New Institution (1995-2001)

In the second phase (1995-2001), Taiwan’s healthcare landscape witnessed significant government involvement, particularly through the implementation of the National Health Insurance (NHI) and fee-for-service (FFS) payment model. The government initially provided funding and progressively increased regulatory oversight to ensure equitable access to healthcare services. Under the FFS model, payment standards were determined by the BNHI, driving hospitals toward institutional change and knowledge creation. However, this system led to escalating healthcare expenses, reaching 312 billion NT in 2001, triggering an economic crisis within the NHI. Consequently, there arose a growing demand for health policy transformation to address these challenges.

In this phase, the Taiwan government’s health policy exerts institutional change pressures to promote institutional innovation within the government-hospital interaction network after the deinstitutionalization of the old system. These institutional change pressures are forces that promote “radical change” in institutionalized settings. The radical change indicates conflicts with prevailing institutions and is congruent with the values and interests of powerful actors within the field.^25,26 Therefore when perceiving institutional change pressures, the first organizations to abandon an institutionalized existing structure and adopt a fundamentally divergent form presented the innovation to the main stakeholders. The organizations invoked isomorphic pressures to explain and justify the new structure, and they associated the innovation with legitimated institutions. For example, Arndt and Bigelow ⁶ provide evidence of widespread changes happening within institutionalized healthcare fields, and each shows how various institutional change pressures induced and directed these changes to present structural innovation in the hospital sector. Moreover, commentaries from Informant 10 provide insight into this period of change:

Since March 1995, the Taiwanese government has implemented NHI to provide comprehensive coverage for citizens and some foreigners, ensuring equitable access to health care (stimulating social, functional, and political pressures). The Taiwan Hospital Association (THA), and Joint Commission of Taiwan (JCT), in consultation with the government (framing contests), developed a fee-for-service (FFS) payment system. THA established a government-hospital network (constructing networks) to reshape operating procedures under FFS (enacting the institutional arrangements), allowing hospitals to apply for medical payments based on service, severity of illness, and level of accreditation, with no maximum limit (collective action processes). However, a major shift took place in 2002 with the adoption of prospective payment systems (PPS) (new institutional change pressures), restricting healthcare service expansion.

From the above discussion, this study suggests proposition 2:

Proposition 2: The institutional change pressures excreted by Taiwan’s government will influence the government-hospitals interaction network’s institutional innovation in Taiwan’s healthcare sector.

Transformation of Institutions (2002-2015)

Introduced in 2002, Taiwan’s healthcare policies shifted toward the Global Budgeting System (GBS), prompting social, functional, and political pressures. Under GBS, the BNHI determines the total reimbursement available to medical service providers, alongside initiatives like self-paid medical care and the Self-Management Project (SMP), assessing provider performance annually. Termed the period of managerial control and market mechanisms (2002-2015), this era fostered institutional innovation, emphasizing efficiency in service provision. However, GBS altered financial incentives for medical service providers (MSPs), leading to agency problems—restricting patient access and controlling expenditure. GBS operations resulted in financing shortages, highlighting the necessity for hospital administrators to innovate institutional strategies for survival, driving ongoing transformations in healthcare organizational logic.

In the third phase, Taiwan’s hospitals developed knowledge creation capabilities and promoted institutional innovation in the government-professional-hospital network. Hospitals that undergo organizational change, which results from institutional pressures, can be seen as some form of knowledge creation process. Organizational changes need both explicit knowledge and tacit knowledge to activate the knowledge creation process. ¹¹ According to Smith et al, ¹¹ this study suggests “knowledge creation capability” comprising of access to parties, value anticipation, and combination capability as the hospital’s ability or process to integrate existing knowledge-based resources to create new institutional knowledge. Drawing on institutional theory ²⁷ and work on knowledge creation in an institutionalized healthcare context, ²⁸ We suggest that knowledge creation capability can play a role in the establishment of new institutions by facilitating their creation. This study argues that perceived institutional change pressures require the hospital’s knowledge creation capability to innovate institutions under an institutional environment. Informant 6 noted that the hospital’s use of knowledge creation capabilities facilitated this innovation, leading to the legitimization and institutionalization of new healthcare norms and practices across the healthcare sector.

NHIB fosters the contracted hospitals to participate in the “innovative hospital project.” While many hospitals are still sitting on the fence, more and more hospitals rush to train their employees to improve productivity (value anticipation, combination capability) and learn the best practices by benchmarking approaches from best performers (access to parties) in a healthcare setting. Therefore, they may have enough ability (knowledge creation capability) to participate in a self-management project (institutional innovation) under GBS for a certain hospital even though little evidence of cost-efficacy. (Informant 6)

Accordingly, we find the deep influence of the implementation of NHI. These institutional change pressures guide some institutional innovations that are facilitated by organizational knowledge creation capabilities. Therefore, we offer the following proposition 3:

Proposition 3: The knowledge creation capabilities of a hospital will be positively related to the government-hospitals network’s institutional innovation processes.

Diffusion of New Institution (2016-2021)

Traditionally, healthcare operated on a volume-based, provider-centric model driven by fee-for-service (FFS) payment, where patients were viewed as passive recipients. However, the introduction of the GBS ushered in Shared Decision Making (SDM), promoting collaboration between medical professionals and patients to enhance care quality. Since 2006, Taiwan's MHOW has integrated patient and family participation in safety initiatives into hospital goals. From 2016 to 2021, a shift toward patient-centered healthcare emerged, emphasizing patient-centric institutional logic. This transition reflects a move toward value-based care, propelled by initiatives like SDM. Institutional innovations within government-hospital networks have introduced novel institutions, impacting hospital performance and sustainability. ²⁹ For example, Yang et al, ²⁸ argues that new institutional contexts create isomorphic pressures on healthcare organizations, prompting hospitals to adopt legitimation strategies to gain legitimacy and secure resources like technology, finance, and institutional support. ³⁰

However, through elevating access to knowledge-sharing parties, value anticipation of knowledge creation, and combination capability of knowledge in the hospital, the knowledge creation capabilities of a hospital can be seen as the cornerstone of many functions in the hospital, such as improving health quality, overcoming barriers to enter the health market, shortening the health services cycle or waiting times, and developing new health services and technology.^11,31 The functions of created institutional knowledge for innovation suggest that hospital performance in terms of structure, process, and outcome assessments is determined critically by the abilities to create institutional knowledge at the individual, organization, and environment levels. ³² For example, the reform of health insurance policy may impact the hospital assessment of structure, process, and outcomes suggested by the JCT. Moreover, the knowledge creation capabilities developed in earlier phases facilitated the diffusion of new institutions, contributing to legitimacy and enhancing hospital performance. Therefore, this study suggests propositions 4 and 5:

Proposition 4: The government-hospitals network’s institutional innovation processes are positively related to hospital performance.

Proposition 5: The knowledge creation capabilities of a hospital are positively related to hospital performance.

Discussion

Theoretical Implications

We contribute to institutional innovation theory in the following points. First, even though there growing research interest in institutional innovation processes, a highlighting of field-level tensions has restricted our knowledge about why and how field-level institutional innovation be able to be initiated and how it could fail. The model proves how institutional innovation can initiate at the apparent network level and reply to the prevailing government’s institutional change pressures to confirm hospitals’ performance in the context of new institutional complexity. ³² Second, we reveal how institutional theory contributes to clarifying institutional innovation through the construct of knowledge creation capabilities. Therefore, this study integrates institutional theory and knowledge creation theory to understand institutional innovation. ²⁵ Third, the proposed model illuminates the role of knowledge creation capabilities that enable and facilitate the core mechanisms of institutional change pressures-driven innovation and further influence hospital performance as well. These underlying forces form the approach in which institutional needs infiltrate a professional network and impact how fast organization-level modifications will fuse in the organization and diffuse to the healthcare sector. Finally, we combine knowledge creation theory and institutional theories to empirically test institutional innovation. It reveals how the interaction of institutional and knowledge creation processes is important for institutional innovation. The theoretical viewpoint additionally aids strategy and institutional theorists in developing explanations of institutional innovation and creating a much-needed multi-level insight into hospital behavior in the highly institutionalized healthcare sector (Figure 2).

Managerial Implications

The findings have significant managerial implications for healthcare administrators. Firstly, we underscored the importance of studying the dynamic interaction between hospitals and their institutional environment. Drawing on the theoretical framework of institutional innovation, we examined the developmental trajectory of hospitals and investigated how health policies influence them. Hospitals that exhibit a higher level of institutional innovation are more likely to achieve superior performance and gain a competitive advantage. Furthermore, these hospitals can enhance their institutional innovation by enhancing their knowledge creation capabilities. Secondly, novel institutions that align with evolving health policies receive strong endorsement and support in fostering hospital development. However, given the continuous transformation of favored health policies, hospitals must proactively identify innovative development points to adapt to changes in the healthcare system over time. Lastly, as organizational field-level pressures drive institutional change within hospitals’ innovative endeavors in practice, hospital administrators must recognize its positive impact on their institutional innovation process and subsequent performance.

Conclusion

To conclude, the model suggests a multi-level description of institutional innovation representing how institutional change pressures at the field level can stimulate the diffusion of network-level institutional innovation for further hospital performance. These multi-level institutional innovation processes seemingly are impacted by an increasing degree of knowledge creation capabilities at an organizational level in an institutional context. Nevertheless, these case studies may perhaps raise the problem of generalizability; hence, additional survey studies and literature reviews are needed to offer a constructive explanation of the institutional innovation and knowledge creation issues of the hospital’s strategic behavior in the healthcare context.