No mission? No motivation. On hospitals' organizational form and charity care provision

A healthcare provider faces two decision problems. On the one hand, it chooses its organizational form: a hospital can be a for‐profit institution providing compensated care only, or it can be a nonprofit organization whose mission is enhancing access to care for uninsured, low‐income patients. On the other hand, the provider chooses which health professionals to hire, without observing their heterogeneous skills and their pro‐social motivation. These decisions are related because an increase in the percentage of revenues, that the nonprofit hospital sacrifices for charity care, might enhance the motivation of its workers and induce some of them to donate their labor, that is, to volunteer. Accordingly, this article analyzes the provider's optimal screening contracts, which are contingent on workers' ability and satisfy limited liability, and relates them to the optimal choice of its mission‐orientation. The results provide a new rationale for: a the emergence of different organizational forms for hospitals, such as for‐profits and nonprofits, which complement public hospitals in the provision of health care, b the heterogeneity in the degree of charity care chosen by different nonprofit hospitals.