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The Internal Organization of Hospitals: Some Economic Implications

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Author Info
Jeffrey E. Harris
Abstract

This paper investigates the economic implications of the hospital's internal organizations structure. It concludes: (1) The hospital is actually two separate firms -- a medical staff (or demand division) and an administration (or supply division). Each half of the organization has its own managers, objectives, pricing strategies and constraints. (2) Within this dual organization, the medical staff and administration have devised a complicated system of nonprice allocative rules. (3) This internal allocative scheme is subject to repeated breakdowns, especially when the medical staff's internal demands exceed the short-run capacity supplied by the administration. (4) Our current regulatory policy toward hospitals is almost exclusively directed at the supply side of the organization. Unless we revise our definition of "hospital" to include the doctor part of the firm, this policy is doomed to failure. (5) Ultimately, a rational public policy toward hospitals requires a change in the internal organization of the hospital itself.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 8 (1977)
Issue (Month): 2 (Autumn)
Pages: 467-482
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Handle: RePEc:rje:bellje:v:8:y:1977:i:autumn:p:467-482

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  1. Carroll, Kathleen & Ruseski, Jane, 2009. "Modeling Internal Decision Making Process: An Explanation of Conflicting Empirical Results on Behavior of Nonprofit and For-Profit Hospitals," Working Papers 2009-23, University of Alberta, Department of Economics. [Downloadable!]
  2. Rehn, Eric, 2007. "Public Hospitals - Incentives and Organization," Working Papers 2007:13, Lund University, Department of Economics, revised 01 Apr 2008. [Downloadable!]
  3. Ana, MAULEON & Laurent, COUDEVILLE & Benoit, DERVAUX, 2004. "Prospective payment system : consequences for hospital-physician interactions in the private sector," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  4. Tambour, Magnus & Rehnberg, Clas, 1997. "Internal Markets and Performance in Swedish Health Care," Working Paper Series in Economics and Finance 161, Stockholm School of Economics. [Downloadable!]
  5. Matteo M Galizzi & Marisa Miraldo, 2008. "Optimal Contracts and Contractual Arrangements Within the Hospital: Bargaining vs. Take-it-or-leave-it Offers," Working Papers 037cherp, Centre for Health Economics, University of York. [Downloadable!]
  6. Ron Borzekowski, 2002. "Measuring the cost impact of hospital information systems: 1987-1994," Finance and Economics Discussion Series 2002-42, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. David M. Cutler, 1993. "The Incidence of Adverse Medical Outcomes Under Prospective Payments," NBER Working Papers 4300, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Health Care System," NBER Working Papers 14212, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. David Crainich & Hervé Leleu & Ana Mauleon, 2008. "The optimality of hospital financing system: the role of physician–manager interactions," International Journal of Health Care Finance and Economics, Springer, vol. 8(4), pages 245-256, December. [Downloadable!] (restricted)
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