Does the Profit Motive Make Jack Nimble? Ownership Form and the Evolution of the U.S. Hospital Industry
AbstractWe examine the evolving structure of the U.S. hospital industry since 1970, focusing on how ownership form influences entry and exit behavior. We develop theoretical predictions based on the model of Lakdawalla and Philipson, in which for-profit and not-for-profit hospitals differ regarding their objectives and costs of capital. The model predicts for-profits would be quicker to enter and exit than not-for-profits in response to changing market conditions. We test this hypothesis using data for all U.S. hospitals from 1984 through 2000. Examining annual and regional entry and exit rates, for-profit hospitals consistently have higher entry and exit rates than not-for-profits. Econometric modeling of entry and exit rates yields similar patterns. Estimates of an ordered probit model of entry indicate that entry is more responsive to demand changes for for-profit than not-for-profit hospitals. Estimates of a discrete hazard model for exit similarly indicate that negative demand shifts increase the probability of exit more for for-profits than not-for-profits. Finally, membership in a hospital chain significantly decreases the probability of exit for for-profits, but not not-for-profits.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2005-E55.
Date of creation: Oct 2005
Date of revision:
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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
Other versions of this item:
- Sujoy Chakravarty & Martin Gaynor & Steven Klepper & William B. Vogt, 2006. "Does the profit motive make Jack nimble? Ownership form and the evolution of the US hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 345-361.
- Sujoy Chakravarty & Martin Gaynor & Steven Klepper & William B. Vogt, 2005. "Does the Profit Motive Make Jack Nimble? Ownership Form and the Evolution of the U.S. Hospital Industry," NBER Working Papers 11705, National Bureau of Economic Research, Inc.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
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