An Alternative Model for Analyzing the Physician-Hospital Relationship in Rural Areas

We introduce a modeling framework called Transaction Cost Economics to help decision makers in rural health care markets choose among alternative organizational relationships in order to more cost-effectively deliver healthcare services. In particular, the hospital-physician relationship is analyzed and the transactional attributes, institutional environment, and market characteristics are identified as key variables influencing the organizational relationship between hospital and physician. As asset specfic investments are made by either the hospital or physician, vertically integrated relationships are more likely to occur. The degree of remoteness of rural areas is also considered to affect the impact of these asset-specific investments.