Accountable Care Organizations and Transaction Cost Economics. (December 2016)

• Record Type: Journal Article
• Authors: Mick, Stephen S. Farnsworth; Shay, Patrick D.
• Other Names: Singer Sara J. guest-editor.; Vogus Timothy J. guest-editor.
• Is Part Of: Medical care research and review. Volume 73:Number 6(2016:Dec.)
• Page Start: 649
• Page End: 659
• Publication Date: 2016-12
• Subjects: Organization theory -- Transaction Cost Economics -- Accountable Care Organizations -- Vertical Integration; Medical care -- United States -- Periodicals; Medical care -- Periodicals; Medical care -- Research -- United States -- Periodicals; Medical care -- Research -- Periodicals; Medical economics -- United States -- Periodicals; Medical economics -- Periodicals; 362.10973
• DOI: 10.1177/1077558716640411
• Languages: English
• ISSNs: 1077-5587

Abstract

Using a Transaction Cost Economics (TCE) approach, this paper explores which organizational forms Accountable Care Organizations (ACOs) may take. A critical question about form is the amount of vertical integration that an ACO may have, a topic central to TCE. We posit that contextual factors outside and inside an ACO will produce variable transaction costs (the non-production costs of care) such that the decision to integrate vertically will derive from a comparison of these external versus internal costs, assuming reasonably rational management abilities. External costs include those arising from environmental uncertainty and complexity, small numbers bargaining, asset specificity, frequency of exchanges, and information "impactedness." Internal costs include those arising from human resource activities including hiring and staffing, training, evaluating (i.e., disciplining, appraising, or promoting), and otherwise administering programs. At the extreme, these different costs may produce either total vertical integration or little to no vertical integration with most ACOs falling in between. This essay demonstrates how TCE can be applied to the ACO organization form issue, explains TCE, considers ACO activity from the TCE perspective, and reflects on research directions that may inform TCE and facilitate ACO development.