Physician Market Power in Perspective

Today, I have read an article entitled ” Market power and contract form: evidence from physician group practices,” Town et al. (2011) published in International Journal Health Care Finance Economics Vol. (11), pp: 115-132. The article is well written, and it addresses a critical issue about physicians behavior. Although Physicians are critical in providing health, this critical position shouldn’t be used to abuse the system (probably this is a strong conclusion).

The authors used a simple but appealing model to reach their objective that physicians market power affects the form of their contracts (Town et al., 2011). The authors maximized physician income and quality by using physicians profit under constraint of their utility. The model is  a variation from Evans’s model if I am not wrong. In their model, the authors assumed that physicians have certain reservation value or utility, for which the physicians will provide their services that correspond to certain level of quality and income. in addition, the physician will not provide any quality care, if their reimbursement or income drop below a certain level; but also the authors noted that some physicians could provide service under capitation, but they will not care less (See Pauly, 1995).

The take point from this short analysis is related to ACO and bundle payment. In other words, what will be the physicians behavior in terms of type or form of contract they will accept, known that they will be forced to accept bundle payment with the expectation for high quality care.