A Conceptual Framework for Evaluating Joint Venture Opportunities between Hospitals and Physicians

Abstract

A Conceptual Framework for Evaluating Joint Venture Opportunities Between Hospitals and Physicians

This paper reviews the changes in the competitive and regulatory environment and examines the impact of those changes on the relationships between hospitals and physicians. Transaction cost economics (TCE) provides a conceptual framework for examining the emergence of closer linkages between hospitals and physicians than the traditional independent hospital and medical staff organisations. TCE predicts that as investments in support of transactions become more specialised, closer linkages are more efficient. To illustrate, two case studies of successful hospital-physician joint ventures are presented. The first case study describes a joint venture between hospitals and physicians to purchase durable medical equipment. The second case describes the breakdown of an informal arrangement and the subsequent formation of a joint venture to organise a clinical programme. The discussion reports the rationale for choosing these structural arrangements and their key features, pointing out how TCE would account for the decision to establish a joint venture. The conclusion discusses the implications of this argument for the strategic decisions of health care managers.

Get full access to this article

View all access options for this article.

References

Alchian

Demsetz

(1972). ‘Production, Information Costs, and Economic Organisation’, American Economic Review, 62 (December): 777–95.

Anderson

Gatignon

(1986). ‘Modes of Foreign Entry: A transaction cost analysis and propositions’, Journal of International Business Studies, (Fall): 1–26.

Conrad

D. A.

Mick

S. S.

Madden

C. W.

Hoare

(1988). ‘Vertical Structures and Control in Health Care Markets: A conceptual framework and empirical review’, Medical Care Review, 45 (Spring): 49–100.

The Economist (1987). The battle to contain costs. 3 October: 34, 36.

Flood

Scott

(1983). ‘Professional Power and Professional Effectiveness: The power of the surgical staff and the quality of surgical care in hospitals’, in Luke

Drueger

Modrow

(eds), Organization and Change in Health Care Quality Assurance. Rockville, MD: Aspen Systems Corporation.

Harris

J. E.

(1977). ‘The International Organisation of Hospitals: Some economic implications’, Bell Journal of Economics, 8 (Autumn): 467–82.

Havighurst

(1986). ‘The Changing Locus of Decision Making in the Health Care Sector’, Journal of Health Politics, Policy and Law, 11 (4): 697–735.

Havighurst

(1984). ‘Doctors and Hospitals: An antitrust perspective on traditional relationships’, Duke Law Journal: 1071–1162

Mechanic

(1986). From Advocacy to Allocation: The evolving American health care system. New York: The Free Press.

10.

Shortell

S. M.

Wickizer

Wheeler

J. R. C.

(1984). Hospital-Physician Joint Ventures: Results and lessons from a national demonstration in primary care. Ann Arbor, Michigan: Health Administration Press.

11.

Shortell

S. M.

(1985). ‘The Medical Staff of the Future: Replanting the garden’, Frontiers of Health Services Management, 1 (3): 3–48.

12.

Starr

(1982). The Social Transformation of American Medicine. New York: Basic Books, Inc.

13.

Teece

D. J.

(1986). Market Entry Strategies for Innovators: Avoiding pyrrhic victories. Working paper, Center for Research in Management, University of California at Berkeley.

14.

Williamson

O. E.

(1985). The Economic Institutions of Capitalism. New York: The Free Press.