Organizational Economics and Physician Practices

James B. Rebitzer, Mark E. Votruba

NBER Working Paper No. 17535
Issued in October 2011, Revised in June 2013
NBER Program(s):Health Care, Health Economics, Labor Studies

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 between hospitals and physicians. Compounding these problems are patterns of medical specialization that complicate coordination among physicians. We conclude by considering the policy implications of our analysis - paying particular attention to proposed Accountable Care Organizations.

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Document Object Identifier (DOI): 10.3386/w17535

Published: Rebitzer, J and Votruba, M. “Organizational Economics and Physician Practices”, Encyclopedia of Health Economics, Elsevier Limited (accepted February 2013, to be published 2014)

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