Compensation Arrangements Between Hospitals and Physicians

Roger Feldman, Frank Sloan and Lynn Paringer

Bell Journal of Economics, 1981, vol. 12, issue 1, 155-170

Abstract: This paper investigates the pattern of compensation arrangements between hospitals and physicians. Hospitals are assumed to choose a combination of salary and incentive or output-based compensation to maximize utility from profits and physicians' nonpatient care activities. Our theory suggests that medical care prices have implications for the choice of compensation method when risk and the costs of supervision are held constant. We use data from two hospital surveys to estimate an equation explaining the percentage of a hospital's physicians on salary. Salary arrangements are less frequent where the price of physicians' patient care services is high and revenues from grants and the Medicaid program are low. Implications of these results for public policy are discussed.

Date: 1981
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