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The Internal Organization of Hospitals: Some Economic Implications

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  • 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.

Suggested Citation

  • Jeffrey E. Harris, 1977. "The Internal Organization of Hospitals: Some Economic Implications," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 467-482, Autumn.
  • Handle: RePEc:rje:bellje:v:8:y:1977:i:autumn:p:467-482
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    Cited by:

    1. Adriana Castelli & Andrew Street & Rossella Verzulli & Padraic Ward, 2015. "Examining variations in hospital productivity in the English NHS," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(3), pages 243-254, April.
    2. Rajiv Sharma & Miron Stano & Renu Gehring, 2008. "Short-term fluctuations in hospital demand: implications for admission, discharge, and discriminatory behavior," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 586-606.
    3. Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, vol. 63(1), pages 29-50, January.
    4. Thierry Nobre, 1998. "Management de la valeur et pouvoirs dans l'hôpital," Revue Finance Contrôle Stratégie, revues.org, vol. 1(2), pages 113-135, June.
    5. Vitikainen, Kirsi & Street, Andrew & Linna, Miika, 2009. "Estimation of hospital efficiency--Do different definitions and casemix measures for hospital output affect the results?," Health Policy, Elsevier, vol. 89(2), pages 149-159, February.
    6. Daidone, Silvio & Street, Andrew, 2013. "How much should be paid for specialised treatment?," Social Science & Medicine, Elsevier, vol. 84(C), pages 110-118.
    7. David Meltzer & Frederick L. Hiltz & David S. Bates, 2000. "Implications of Managed Care for Teaching Hospitals Comparisons of Traditional and Managed Care Medical Services within a Single Institution," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 249-282 National Bureau of Economic Research, Inc.
    8. Ancarani, Alessandro & Di Mauro, Carmela & Gitto, Simone & Mancuso, Paolo & Ayach, Ali, 2016. "Technology acquisition and efficiency in Dubai hospitals," Technological Forecasting and Social Change, Elsevier, vol. 113(PB), pages 475-485.
    9. Blake, John T. & Carter, Michael W., 2003. "Physician and hospital funding options in a public system with decreasing resources," Socio-Economic Planning Sciences, Elsevier, vol. 37(1), pages 45-68, March.
    10. Fidler, Armin H. & Haslinger, Reinhard R. & Hofmarcher, Maria M. & Jesse, Maris & Palu, Toomas, 2007. "Incorporation of public hospitals: A "Silver Bullet" against overcapacity, managerial bottlenecks and resource constraints?: Case studies from Austria and Estonia," Health Policy, Elsevier, vol. 81(2-3), pages 328-338, May.
    11. Long Mark C & Goldfarb Marsha G. & Goldfarb Robert S, 2008. "Explanations for Persistent Nursing Shortages," Forum for Health Economics & Policy, De Gruyter, vol. 11(2), pages 1-37, November.
    12. repec:eee:hepoli:v:121:y:2017:i:5:p:525-533 is not listed on IDEAS
    13. Polyzos, Nicholas M., 2002. "Striving towards efficiency in the Greek hospitals by reviewing case mix classifications," Health Policy, Elsevier, vol. 61(3), pages 305-328, September.
    14. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Healthcare System," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 93-113, Fall.
    15. Kesteloot, K. & Voet, N., 1998. "Incentives for cooperation in quality improvement among hospitals--the impact of the reimbursement system," Journal of Health Economics, Elsevier, vol. 17(6), pages 701-728, December.
    16. Rhema Vaithianathan, 1999. "The Failure of Corporatisation: Public Hospitals in New Zealand," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 6(4), pages 325-338.
    17. Hiroyuki Kawaguchi & Kaoru Tone & Miki Tsutsui, 2014. "Estimation of the efficiency of Japanese hospitals using a dynamic and network data envelopment analysis model," Health Care Management Science, Springer, vol. 17(2), pages 101-112, June.
    18. Domin, Jean-Paul, 2015. "Réformer l’hôpital comme une entreprise. Les errements de trente ans de politique hospitalière (1983-2013)," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 17.
    19. repec:kap:hcarem:v:20:y:2017:i:2:d:10.1007_s10729-015-9348-9 is not listed on IDEAS

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