A "Brand Name Firm" Theory of Medical Group Practice

Abstract

MEDICAL group practices are firms, voluntary contracts between two or more practitioners to jointly provide services, purchase inputs, and distribute income. It is hypothesized that one reason why such organizations are formed is to more efficiently convey information on quality of care to patients, and further, that the increased efficiency of doctor-patient exchange is usually more important than economies of scale in production. A name theory of medical group practice is presented and then tested by comparisons between medicine and dentistry, generalist and specialist practice, and by variations in mobility across patients and providers. Observed variation in the extent and contractual structure of group practice strongly supports the brand name firm hypothesis and is inconsistent with economies of scale explanations.