The Costs of Physician-Hospital Integration

Abstract

This study examines an understudied, albeit important, area of organizational costs that are incurred when transactions are governed within the firm. Specifically, the costs incurred in physician-hospital integration are analyzed through interviews with physicians and hospital administrators in a multiple-case, inductive study. Two types of physician-hospital arrangements are examined: (1) an employed model (i.e., integrated salary model, a group of physicians integrated by a hospital system) and (2) a private practice (i.e., a physician or group of physicians independent of economic or policy control). This research design enables me to investigate both how physician behavior varies across hospital boundaries and the organizational costs that exist in physician-hospital integration. The interviews suggest that integration leads to the attenuation of incentives as well as three evident organizational costs, namely, monitoring, coordination, and cooperation costs.