Hospital Attributes and Physician Prices

Abstract

While the physician's role in determining hospital behavior has been the focus of a number of studies [3; 4; 7; 9], the hospital's affect on physician pricing behavior has been largely ignored. Hospitals provide many of the inputs to the production of physician services, and hospitals differ widely in their attributes, yet there has been little research into the distribution of physicians across hospitals. Clearly there must exist a sorting mechanism which matches each physician with a hospital. In most markets that mechanism is price, but because no explicit fee is exchanged between physicians and hospitals most researchers have modeled the hospital as a free workshop for physicians. The distribution of physicians in these models results from closed staffing agreements which limit the medical staff size at each hospital [8]. This view begs the question of the criteria used by the physician in selecting a hospital, or the criteria used by the hospital in admitting another physician to its medical staff. If one hospital is more attractive to physicians than another, physicians closed out of the superior hospital will exert whatever power they have to increase the desirability of the second hospital. In this case we would expect to see less dispersion in hospital attributes than we now observe. If hospitals view one physician as more attractive than another they will not leave the composition of their medical staffs to random chance. If the superior physician incurred any cost to become more desirable to the hospital then hospital affiliation is not free.