NBER Publications by Mark Votruba

Economists seeking to improve the efficiency of health care delivery frequently emphasize two issues: the fragmented structure of physician practices and poorly designed physician incentives. This paper analyzes these issues from the perspective of organizational economics. We begin with a brief overview of the structure of physician practices and observe that the long anticipated triumph of integrated care delivery has largely gone unrealized. We then analyze the special problems that fragmentation poses for the design of physician incentives. Organizational economics suggests some promising incentive strategies for this setting, but implementing these strategies is complicated by norms of autonomy in the medical profession and by other factors that inhibit effective integration betwe...

We analyze the role of search frictions in the market for commercial health insurance. Frictions increase the cost of insurance by enabling insurers to set price above marginal cost, and by creating incentives for inefficiently high levels of marketing. Frictions also lead to price dispersion for identical products and, as a consequence, to increases in the rate of insurance turnover. Our empirical analysis indicates that frictions increase prices enough to transfer 13.2% of consumer surplus from employer groups to insurers (approximately $34.4 billion in 1997), and increase employer group turnover by 64% for the average insurance policy. This heightened turnover reduces insurer incentives to invest in the future health of their policy holders. Our analysis also suggests that a publicly-fi...

Many goods and services can be readily provided through a series of unconnected transactions, but in health care close coordination over time and within care episodes improves both health outcomes and efficiency. Close coordination is problematic in the US health care system because the financing and delivery of care is distributed across a variety of distinct and often competing entities, each with its own objectives, obligations and capabilities. These fragmented organizational structures lead to disrupted relationships, poor information flows, and misaligned incentives that combine to degrade care quality and increase costs. We illustrate our argument with examples taken from the insurance and the hospital industries, and discuss possible responses to the problems resulting from orga...