Understanding the antecedents to the adoption of information technology is important to both technology firms and policy analysts that study the effects of technology adoption on healthcare. This paper uses a transactional cost approach to investigate the role of trust and privacy as moderators in the adoption of Application Service Providers (ASPs) as a new form of information technology outsourcing in the healthcare industry within the current regulatory climate created by HIPAA (Health Insurance Portability and Accountability Act). The analysis utilized a seven-stage measure to capture adoption. Our analysis showed that Transactions costs and the antecedents of transaction costs were highly significant in the ASP adoption process. The direct and moderated effects of Trust and Privacy were not significant.