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Hospital Ownership

Hospital Ownership. Economics 737.01 2/15 /11. Outline. I. Introduction II. Theoretical Models III. Empirical Evidence. I. Introduction. Organization ownership forms For-profit: distribute profits to equity holders

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Hospital Ownership

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  1. Hospital Ownership

    Economics 737.01 2/15/11
  2. Outline I. Introduction II. Theoretical Models III. Empirical Evidence
  3. I. Introduction Organization ownership forms For-profit: distribute profits to equity holders Not-for-profit: profits cannot be distributed to individuals; must be re-invested into the organization Exempt from corporate income and property taxes Eligible for private donations Easier access to tax-exempt bonds Can’t raise money by selling stock Selection of board members fuzzier than for-profit
  4. I. Introduction Organization ownership forms Public Also tax exempt Profits go to government Government appoints board and monitors output Hospitals have less control over compensation and employment practices Generally can’t turn away patients even if they can’t pay
  5. I. Introduction For-profit hospitals are rare in developed countries: US: 60% non-profit, 28% public, 12% for-profit Canada: 98% public France: 65% public, 16% non-profit, 19% for-profit Germany: about 33% each Netherlands: for-profit prohibited Switzerland: 46% public, 32% non-profit, 22% for-profit UK: mostly public
  6. I. Introduction Why are most US hospitals non-profit? May mitigate incentives to abuse market power arising from difficulty measuring quality of care Fill unmet demand for public goods Do hospitals provide public goods? Not obvious that they do; maybe enhance community spirit or help limit spread of diseases. Willing donors Inertia: difficult to convert Result of bargaining power doctors have since they are not employees Non-profits dominant in sectors with zero or negative profits (Lakdawalla and Philipson, 1998)
  7. II. Theoretical Models In Zweifel and Breyer (1997), hospital behavior is the result of game with four distinct players: Physicians (who are not employees) Employees Owners (community at large in non-profit?) Managers (probably board too) How would hospital behavior be different depending on which group has the power?
  8. II. Theoretical Models Newhouse (1970): model of non-profit hospitals Where X=output, Y=quality, ∏=profit Not pure profit maximizer, also direct utility from quantity and quality because of prestige Constraints: Where P=price, C=cost, M=demand shifter, N=cost shifter, K=capital, and L=labor Increased demand => increased quality and quantity Increased cost => decreased quality and quantity
  9. II. Theoretical Models Pauly and Redisch (1973): non-profit hospital as physician’s cooperative Output, capital, and number of doctors set to maximize income per doctor. Increase in demand could have counterinutitive effects, such as an increase in price, decrease in output, and smaller staff size.
  10. III. Empirical Evidence Costs (Efficiency) Non-profit hospitals may be wasteful For-profit hospitals may push unnecessary services Efficiency difficult to measure: does a higher cost per service reflect inefficiency or better quality? No clear consensus reached in literature
  11. III. Empirical Evidence Quality Keeler et al. (1992) Peer reviews of appropriateness of care in 14,000 medical records Non-profit ≈ for-profit > public Conflicting results in literature using mortality as measure of quality Sloan et al. (1998a, 1998b) and Sloan and Taylor (1999) Survival, functional status, cognitive status, and living arrangements of elderly patients following care for hip fracture, stroke, heart disease, and congestive heart failure Teaching > non-teaching non-profit ≈ for-profit > public
  12. III. Empirical Evidence Cost-shifting: increasing price to private payers when fees paid by public insurance are cut Conditions Hospital has market power in private market Hospital was not fully exploiting this power initially More likely with non-profits than for-profits Dranove (1988): $1 decrease in hospital profits => $0.51 increase in price per private admission Morrisey (1994): evidence for cost-shifting mostly based on old data; there is also evidence against it Why might the extent of cost-shifting have been reduced over time?
  13. III. Empirical Evidence Uncompensated care: includes both charity care (given when payment not expected) and bad debt (care where payment was expected but not received) Giving charity care increases prestige but hurts profits Theoretically more likely in non-profits than for-profits In 1994, uncompensated care 4.5% of revenue in non-profits and 4% in for-profits (US PPAC, 1996) Less uncompensated care if more competing hospitals are for-profit (Frank et al., 1990) Is the relationship just because for-profit hospitals are located where better insured people live (Norton and Staiger, 1994)?
  14. III. Empirical Evidence Profits Non-profits actually seem more profitable than for-profits (though not clear this is causal) Profits of for-profits more variable Competition It appears additional competition causes non-profit hospitals to behave more like for-profits. Diffusion of technology There don’t seem to be significant differences in adoption between for-profit and non-profit.
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