A conceptual framework for evaluating joint venture opportunities between hospitals and physicians

This paper reviews the changes in the competitive and regulatory environment and examines the impact of those changes on the relationships between hospitals and physicians. Transaction cost economics (TCE) provides a conceptual framework for examining the emergence of closer linkages between hospitals and physicians than the traditional independent hospital and medical staff organisations. TCE predicts that as investments in support of transactions become more specialised, closer linkages are more efficient. To illustrate, two case studies of successful hospital-physician joint ventures are presented. The first case study describes a joint venture between hospitals and physicians to purchase durable medical equipment. The second case describes the breakdown of an informal arrangement and the subsequent formation of a joint venture to organise a clinical programme. The discussion reports the rationale for choosing these structural arrangements and their key features, pointing out how TCE would account for the decision to establish a joint venture. The conclusion discusses the implications of this argument for the strategic decisions of health care managers.