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Modeling Internal Decision Making Process: An Explanation of Conflicting Empirical Results on Behavior of Nonprofit and For-Profit Hospitals

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  • Carroll, Kathleen

    () (UMBC Department of Economics)

  • Ruseski, Jane

    () (University of Alberta, Department of Economics)

Abstract

This paper develops multiobjective models of hospital decision making that incorporate the internal decision process in both a for-profit and a nonprofit hospital. Predicted output and quality for a nonprofit hospital differ from those for a for-profit hospital under some conditions but converge under others. Convergence may be the result of a complex internal decision structure with decision control primarily by physicians; similar objectives across different organizational forms; or differing constraints. The mechanisms underlying these outcomes provide explanations for conflicting result in empirical studies of nonprofit and for-profit hospitals and provide a different rationale for convergence than nonprofit response to competition from for-profit hospitals. Understanding the source of convergence is important for policies directed toward the tax treatment of nonproift hospitals.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2009-23.

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Length: 24 pages
Date of creation: 01 Jul 2009
Date of revision:
Handle: RePEc:ris:albaec:2009_023

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Keywords: hospital behavior; hospital ownership; internal decision making; physician-hospital relations;

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  1. BOADWAY, Robin & MARCHAND, Maurice & SATO, Motohiro, 2003. "An optimal contract approach to hospital financing," CORE Discussion Papers 2003021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Jelovac, I. & Macho-Stadler, I., 1998. "Comparing Organizational Structures in Health Services," UFAE and IAE Working Papers 412.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. William N. Gentry & John R. Penrod, 1998. "The Tax Benefits of Not-for-Profit Hospitals," NBER Working Papers 6435, National Bureau of Economic Research, Inc.
  4. Jeffrey E. Harris, 1977. "The Internal Organization of Hospitals: Some Economic Implications," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 467-482, Autumn.
  5. Ettner, Susan L. & Hermann, Richard C., 2001. "The role of profit status under imperfect information: evidence from the treatment patterns of elderly Medicare beneficiaries hospitalized for psychiatric diagnoses," Journal of Health Economics, Elsevier, vol. 20(1), pages 23-49, January.
  6. Sloan, Frank A. & Picone, Gabriel A. & TaylorJr., Donald H. & Chou, Shin-Yi, 2001. "Hospital ownership and cost and quality of care: is there a dime's worth of difference?," Journal of Health Economics, Elsevier, vol. 20(1), pages 1-21, January.
  7. 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.
  8. Ciliberto, Federico & Dranove, David, 2006. "The effect of physician-hospital affiliations on hospital prices in California," Journal of Health Economics, Elsevier, vol. 25(1), pages 29-38, January.
  9. David Crainich & Hervé Leleu & Ana Mauleon, 2008. "The optimality of hospital financing system: the role of physician–manager interactions," International Journal of Health Care Finance and Economics, Springer, vol. 8(4), pages 245-256, December.
  10. Custer, William S. & Moser, James W. & Musacchio, Robert A. & Willke, Richard J., 1990. "The production of health care services and changing hospital reimbursement : The role of hospital-medical staff relationships," Journal of Health Economics, Elsevier, vol. 9(2), pages 167-192, September.
  11. Richard Frank & David S. Salkever, 2000. "Market Forces, Diversification of Activity, and the Mission of No t-for -Profit Hospitals," NBER Chapters, in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 195-226 National Bureau of Economic Research, Inc.
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