Agency and the organization of health care delivery

Recent developments in the theory of agency--the relationship that arises e when a principal delegates authority to an agent--offer powerful insights into the organization of health care delivery systems. In this paper we first provide an overview of the agency literature and then illustrate how relationships between doctors, patients, and hospitals can be explored within an agency framework. We find that not only the evolution of standard fee-for-service relationships but also the emergence of HMOs can be analyzed as responses to uncertainty and to difficulties in writing complete, enforceable contracts. These findings have broad implications for health policy and suggest a variety of strategies for addressing agency issues.