Physician-Hospital Integration and the Economic Theory of the Firm

Abstract

Physicians and hospitals are pioneering new and more coordinated organizational forms under pressure from market competition. Arms-length "doctor's workshop" relationships are yielding to integrated delivery systems and contractual delivery networks. This article analyzes organizational change in health care through the conceptual lens of institutional economics, defined broadly as including agency theory, transactions cost economics, and the dynamic capabilities view of the firm. These theoretical frameworks highlight three distinct functions of organization under managed care: coordination, governance, and innovation.