UC Berkeley

The American hospital faces two different possible futures. In one, the hospital continues to expand into outpatient, home health, and long-term-care services and remains the center of the changing health care system. In the other, competition in each of these domains from independent health plans, which do not have to contend with the high wages, technological imperatives, and bureaucratic inertia of large hospital organizations, pushes the hospital to a peripheral role as provider of ever-diminishing acute inpatient services. The choice between these two futures will be made based on the efficiencies of vertical integration relative to market contracting. Transactions cost economics is used to analyze the changing boundaries of the hospital organization, particularly with respect to outpatient diagnostic and surgical clinics, home health agencies, and long-term-care facilities.