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The Effect of Soft Budget Constraints on Access and Quality in Hospital Care

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  • Yu-Chu Shen
  • Karen Eggleston

Abstract

Given an increasingly complex web of financial pressures on providers, studies have examined how the hospitals' overall financial health affect different aspects of hospital operation. In our study, we analyze this issue focusing on hospital access and quality by introducing an important aspect of the financial incentives, soft budget constraints (SBC), that takes into account both hospital's current and past financial health as well as their expected financial outlook (i.e., whether there is a sponsoring organization to bail them out). We develop a conceptual framework of SBC by considering the resultant incentives on cost control and quality improvement innovations; and examine the effect of SBC on the following aspects of access and quality: safety net service survival and AMI mortality rates. We find that hospitals with softer budget constraints are less likely to shut down safety net services. In addition, hospitals with softer budget constraints appear to have better mortality outcomes, suggesting that the reduced incentive to engage in cost control innovation as the result of SBC outweighs the dampening effect of quality improvement innovation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14256.

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Date of creation: Aug 2008
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Publication status: published as Yu-Chu Shen & Karen Eggleston, 2009. "The effect of soft budget constraints on access and quality in hospital care," International Journal of Health Care Finance and Economics, Springer, vol. 9(2), pages 211-232, June.
Handle: RePEc:nbr:nberwo:14256

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References

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  1. 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.
  2. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
  3. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
  4. Mark McClellan & Douglas Staiger, 1999. "Comparing Hospital Quality at For-Profit and Not-for-Profit Hospitals," NBER Working Papers 7324, National Bureau of Economic Research, Inc.
  5. Cutler, D.M., 1992. "The Incidence of Adverse Medical Outcome Under Prospective Payment," Harvard Institute of Economic Research Working Papers 1603, Harvard - Institute of Economic Research.
  6. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  7. Shen, Yu-Chu, 2003. "The effect of financial pressure on the quality of care in hospitals," Journal of Health Economics, Elsevier, Elsevier, vol. 22(2), pages 243-269, March.
  8. Baker, Laurence C., 2001. "Managed care and technology adoption in health care: evidence from magnetic resonance imaging," Journal of Health Economics, Elsevier, Elsevier, vol. 20(3), pages 395-421, May.
  9. János Kornai, 2009. "The soft budget constraint syndrome in the hospital sector," Society and Economy, Akadémiai Kiadó, Hungary, Akadémiai Kiadó, Hungary, vol. 31(1), pages 5-31, June.
  10. Katherine Baicker & Douglas Staiger, 2004. "Fiscal Shenanigans, Targeted Federal Health Care Funds, and Patient Mortality," NBER Working Papers 10440, National Bureau of Economic Research, Inc.
  11. Gloria J. Bazzoli & Hsueh-Fen Chen & Mei Zhao & Richard C. Lindrooth, 2008. "Hospital financial condition and the quality of patient care," Health Economics, John Wiley & Sons, Ltd., vol. 17(8), pages 977-995.
  12. Eggleston, Karen & Shen, Yu-Chu, 2011. "Soft budget constraints and ownership: Empirical evidence from US hospitals," Economics Letters, Elsevier, Elsevier, vol. 110(1), pages 7-11, January.
  13. Eggleston, Karen, 2008. "Soft budget constraints and the property rights theory of ownership," Economics Letters, Elsevier, Elsevier, vol. 100(3), pages 425-427, September.
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Cited by:
  1. Audibert, Martine & Mathonnat, Jacky & Pelissier, Aurore & Huang, Xiao Xian & Ma, Anning, 2013. "Health insurance reform and efficiency of township hospitals in rural China: An analysis from survey data," China Economic Review, Elsevier, Elsevier, vol. 27(C), pages 326-338.
  2. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2013. "Hospital Competition with Soft Budgets," CESifo Working Paper Series 4073, CESifo Group Munich.
  3. Eggleston, Karen & Shen, Yu-Chu, 2011. "Soft budget constraints and ownership: Empirical evidence from US hospitals," Economics Letters, Elsevier, Elsevier, vol. 110(1), pages 7-11, January.
  4. Kornai, János, 2008. "A puha költségvetési korlát szindrómája a kórházi szektorban
    [The soft budget constraint syndrome in the hospital sector]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1037-1056.
  5. Karen Eggleston & Yu-Chu Shen & Mingshan Lu & Congdong Li & Jian Wang & Zhe Yang & Jing Zhang, 2009. "Soft budget constraints in China: Evidence from the Guangdong hospital industry," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 9(2), pages 233-242, June.
  6. Pérotin, Virginie & Zamora, Bernarda & Reeves, Rachel & Bartlett, Will & Allen, Pauline, 2013. "Does hospital ownership affect patient experience? An investigation into public–private sector differences in England," Journal of Health Economics, Elsevier, Elsevier, vol. 32(3), pages 633-646.
  7. János Kornai, 2009. "The soft budget constraint syndrome in the hospital sector," Society and Economy, Akadémiai Kiadó, Hungary, Akadémiai Kiadó, Hungary, vol. 31(1), pages 5-31, June.

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