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Strategic integration of hospitals and physicians (Essay Sample)

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Please read: Cuellara, A. E. & Gertlerb, P.J. (2006). Strategic integration of hospitals and physicians. Journal of Health Economics. Volume 25, Issue 1, January 2006, Pages 1-28. Click here Abstract: A striking development in the healthcare market place has been the formation of strategic relationships between hospitals and physicians. Hospital/physician integration appears to be a response to rapidly expanding managed care health insurance. We examine whether integration lead to efficiency gains from transaction cost economies thereby allowing providers to offer managed care insurance plans lower prices or whether integration is really a strategy to improve bargaining power and thereby increase prices. We find that integration has little effect on efficiency, but is associated with an increase in prices, especially when the integrated organization is exclusive and occurs in less competitive markets. NOTE: Focus on the concepts and not on the data tables. 1. Please choose 2 types of physician-hospital arrangements. 2. Compare the major points of these 2 types as they pertain to: (a) Physician-hospital relationships. (b) Which in your eyes is more effective? Explain your reasons for your decision. Seperate each question as question 1, 2 (a) (b). source..
Content:

STRATEGIC INTEGRATION OF HOSPITALS AND PHYSICIANS
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Strategic integration of hospitals and physicians
The striking development in the healthcare market place has been a basis for the formation of strategic relationships between most physicians and hospitals in general. Physician and hospital integration seems to be a response to a rapidly expanding managed care health insurance and thus we try to examine whether this integration has led to efficiency gains from transaction cost economies hence giving room to providers to offer managed care insurance plans of lower prices or whether the integration is in essence a strategy to improve the bargaining power thereby lead to an increase in prices. We came to realize that integration has very little effect on the efficiency levels but is highly associated with an increase in prices especially when the integrated organization is exclusive and occurs mostly in less competitive markets.
By the year 1998, approximately 66% of the hospitals had either formed or acquired a long term contract with at least one or more physician organizations. These types of relationships vary from very loosely networked, to open confederations, to exclusive and fully integrated organizations. Hospital physician integration is likely to reflect on the providers organizational responses to very competitive pressures resulting from the rapidly expanding managed care health insurance (Goldstein, 1995). Some of the authors have hypothesized that hospital physician integration is likely to lead to efficiency gains thus facilitating the exploitation of transaction cost of economies like being able to deal with the incomplete contracting challenges and economies of scope while others say that integration is an attempt to improve the barg...
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