Organizational economics and health care markets

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.