Physicians Networks, Integration and Efficiency

Authors:
Seth Sacher and Louis Silvia
Working Paper:
218

The creation of physician networks has been an important part of the managed care revolution. while the anticompetitive dangers of physician-controlled networks are clear, there has been little theoretical or empirical work on why physician control might be efficient relative to other control alternatives. This paper offers a theory, based on asset specificity in the face of the contractual incompleteness, explaining why physician control might be efficient. Our analysis implies that harsh antitrust treatment of physician controlled networks, based on an observation that networks may be organized without physician control, in not appropriate. Recent revisions in antitrust policy are consistent with a more expansive view of the efficiency potential of physician-controlled networks.