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A Kitchen with too Many Cooks: Factors Associated with Hospital Profitability

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  • Na-Eun Cho

    (College of Business, Hongik University, Seoul 04066, Korea)

  • KiHoon Hong

    (College of Business, Hongik University, Seoul 04066, Korea)

Abstract

In this paper, we carefully investigate previous literature to extract 10 relevant factors to explain the hospital profitability and build an econometrically well-specified model of explaining hospital profitability that does not suffer from omitted variable bias. Then we provide empirical evidence to a common belief that the objective function of a hospital varies with the type of hospital. We identified distinct objective functions for three types of hospitals: for-profit hospitals are driven by the overarching agreed-upon goal of profit maximization for shareholders; government hospitals, which are often the insurers of last resort, are obliged to put the public interest over profit objectives; nonprofit hospitals, which are legally prohibited from distributing profits, occupy the middle ground between for-profit and government hospitals. The results of this paper suggest that the ownership type should determine the factors on which hospitals focus and hence are useful to hospital management and academic researchers.

Suggested Citation

  • Na-Eun Cho & KiHoon Hong, 2018. "A Kitchen with too Many Cooks: Factors Associated with Hospital Profitability," Sustainability, MDPI, vol. 10(2), pages 1-14, January.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:2:p:323-:d:128907
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    References listed on IDEAS

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    1. Wilson, Michael & Cutler, David M., 2014. "Emergency Department Profits Are Likely To Continue As The Affordable Care Act Expands Coverage," Scholarly Articles 33471113, Harvard University Department of Economics.
    2. Matthew S. Lewis & Kevin E. Pflum, 2015. "Diagnosing Hospital System Bargaining Power in Managed Care Networks," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 243-274, February.
    3. Bernard Friedman & Neeraj Sood & Kelly Engstrom & Diane McKenzie, 2004. "New Evidence on Hospital Profitability by Payer Group and the Effects of Payer Generosity," International Journal of Health Economics and Management, Springer, vol. 4(3), pages 231-246, September.
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    6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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    8. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
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    Cited by:

    1. Katarzyna Dubas-Jakóbczyk & Ewa Kocot & Anna Kozieł, 2020. "Financial Performance of Public Hospitals: A Cross-Sectional Study among Polish Providers," IJERPH, MDPI, vol. 17(7), pages 1-14, March.
    2. Katarzyna Dubas-Jakóbczyk & Anna Kozieł, 2020. "Towards Financial Sustainability of the Hospital Sector in Poland—A Post Hoc Evaluation of Policy Approaches," Sustainability, MDPI, vol. 12(12), pages 1-19, June.
    3. Germà Bel & Marc Esteve, 2018. "“Is Private Production of Hospital Services Cheaper than Public Production? A Meta-Regression of Public vs Private Costs and Efficiency for Hospitals”," IREA Working Papers 201824, University of Barcelona, Research Institute of Applied Economics, revised Oct 2018.

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