As health policy emphasizes the use of private sector mechanisms to pursue
public sector goals, health services research needs to develop stronger con
ceptual frameworks for the interpretation of empirical studies of health ca
re markets and organizations. Organizational relationships should not be in
terpreted exclusively in terms of competition among providers of similar se
rvices but also in terms of relationships among providers of substitute and
complementary services and in terms of upstream suppliers and downstream d
istributors. This article illustrates the potential applicability of transa
ctions cost economics, agency theory, and organizational economics more bro
adly to horizontal and vertical markets in health care. Examples are derive
d from organizational integration between physicians and hospitals and orga
nizational conversions from nonprofit to for-profit ownership.