The Effects of Physician-Hospital Organization on the Financial Performance of System Hospitals: An Empirical Investigation of Vertical Integration Strategies

Date of Submission


Document Type


Degree Name

Doctor of Science in Management Systems (Sc.D.)




Sanja Grubacic

Committee Member

Zeljan Schuster

Committee Member

Kamal Upadhyaya

LC Subject Headings

Hospital--physician joint ventures, Multihospital systems--Finance, Hospitals--Administration

Call No. at the Univ. of New Haven Library

AS 36 .N290 Mgmt. Syst. 2001 no. 5


This study analyzes the relationship between hospital financial performance outcomes and physician participation in hospital management strategy of for-profit and non-profit hospital systems.

The number of physicians participating in hospital management is increasing in hospital systems. Hospital managers have a strong incentive to develop administrative mechanisms that improve the fit between the goals and actions of physicians and administrators. To this end, an array of different physician-hospital integration strategies have been proposed. Although experts have proclaimed the benefits of such strategies, and providers have moved to develop them, there is little empirical evidence in their support.

Consequently, one question researchers need to examine is the impact physician-hospital integration efforts have on health care delivery and hospitals in these systems. The effects of physician participation in hospital management on the performance of system hospitals in general, and the effects of the types of physician-hospital organizations on hospital performance in particular have not been studied intensively.

Using a utility maximization approach, the relationship between two performance measures - cost and productivity - and several organizational strategic actions - pre-hospital and post-hospital integration strategies and open and closed Physician-Hospital Organizations (PHOs) - is studied. Data are provided by the AHA Annual Survey and complemented by data from the AHA Guide to the Health Care Field and HCFA (Health Care Financing Administration) Statistical and Data files.

The results do not support the relationship between the frequency of physician-hospital organizations and hospital costs. However, participation in open PHOs was negatively related to costs.

The hypothesis of a relationship between the frequency of physician-hospital organizations and productivity rate was supported. In addition, it was found that participation in closed PHOs was positively related to productivity rate.

The study provides evidence to suggest that the relationship between hospital performance and participation in physician-hospital organizations may depend more on the type of physician affiliation rather than the number of organizations present in the system. Analyses of the cross-sectional data included factor analysis for variable reduction and multiple OLS regression.