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Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?

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  • Gabriel Picone
  • Shin-Yi Chou
  • Frank Sloan

Abstract

We examine how changes in hospital ownership to and from for-profit status affect quality and Medicare payments per hospital stay. We hypothesize that hospitals converting to for-profit ownership boost postacquisition profitability by reducing dimensions of quality not readily observed by patients and by raising prices. We find that 1-2 years after conversion to for-profit status, mortality of patients, which is difficult for outsiders to monitor, increases while hospital profitability rises markedly and staffing decreases. Thereafter, the decline in quality is much lower. A similar decline in quality is not observed after hospitals switch from for-profit to government or private nonprofit status.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 3 (Autumn)
Pages: 507-523

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Handle: RePEc:rje:randje:v:33:y:2002:i:autumn:p:507-523

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Cited by:
  1. Gobillon, Laurent & Milcent, Carine, 2010. "Spatial Disparities in Hospital Performances," CEPR Discussion Papers 7826, C.E.P.R. Discussion Papers.
  2. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2012. "Quality competition with profit constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 642-659.
  3. Brekke, Kurt Richard & Siciliani, Luigi & Straume, Odd Rune, 2011. "Quality competition with profit constraints: Do non-profit firms provide higher quality than for-profit firms?," CEPR Discussion Papers 8284, C.E.P.R. Discussion Papers.
  4. Oliver Tiemann & Jonas Schreyögg, 2012. "Changes in hospital efficiency after privatization," Health Care Management Science, Springer, vol. 15(4), pages 310-326, December.
  5. Brigitte Dormont & Carine Milcent, 2013. "Comment évaluer la productivité et l'efficacité des hôpitaux publics et privés ? Les enjeux de la convergence tarifaire," Post-Print halshs-00833207, HAL.
  6. Leone, Andrew J. & Van Horn, R. Lawrence & Wedig, Gerard J., 2005. "Abnormal returns and the regulation of nonprofit hospital sales and conversions," Journal of Health Economics, Elsevier, vol. 24(1), pages 113-135, January.
  7. Dormont, Brigitte & Milcent, Carine, 2012. "Ownership and Hospital Productivity," Economics Papers from University Paris Dauphine 123456789/12066, Paris Dauphine University.
  8. Carine Milcent, 2005. "Hospital ownership, reimbursement systems and mortality rates," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1151-1168.
  9. Lien, Hsien-Ming & Chou, Shin-Yi & Liu, Jin-Tan, 2008. "Hospital ownership and performance: Evidence from stroke and cardiac treatment in Taiwan," Journal of Health Economics, Elsevier, vol. 27(5), pages 1208-1223, September.
  10. Pizzini, Mina J., 2006. "The relation between cost-system design, managers' evaluations of the relevance and usefulness of cost data, and financial performance: an empirical study of US hospitals," Accounting, Organizations and Society, Elsevier, vol. 31(2), pages 179-210, February.

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