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Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?

Author

Listed:
  • Gabriel Picone
  • Shin-Yi Chou
  • Frank Sloan

Abstract

We examine how changes in hospital ownership to and from for-profit status affect quality and Medicare payments per hospital stay. We hypothesize that hospitals converting to for-profit ownership boost postacquisition profitability by reducing dimensions of quality not readily observed by patients and by raising prices. We find that 1-2 years after conversion to for-profit status, mortality of patients, which is difficult for outsiders to monitor, increases while hospital profitability rises markedly and staffing decreases. Thereafter, the decline in quality is much lower. A similar decline in quality is not observed after hospitals switch from for-profit to government or private nonprofit status.

Suggested Citation

  • Gabriel Picone & Shin-Yi Chou & Frank Sloan, 2002. "Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 507-523, Autumn.
  • Handle: RePEc:rje:randje:v:33:y:2002:i:autumn:p:507-523
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    References listed on IDEAS

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    1. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April.
    2. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
    3. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
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    Cited by:

    1. Laurent Gobillon & Carine Milcent, 2013. "Spatial disparities in hospital performance," Journal of Economic Geography, Oxford University Press, vol. 13(6), pages 1013-1040, November.
    2. Carine Milcent, 2005. "Hospital ownership, reimbursement systems and mortality rates," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1151-1168.
    3. Carine Milcent & Brigitte Dormont, 2012. "Ownership and Hospital Productivity
      [Productivité et l’efficacité des hôpitaux publics et privés]
      ," Working Papers hal-01521269, HAL.
    4. Dalton, Christina Marsh & Warren, Patrick L., 2016. "Cost versus control: Understanding ownership through outsourcing in hospitals," Journal of Health Economics, Elsevier, vol. 48(C), pages 1-15.
    5. Steve Cicala & Ethan M.J. Lieber & Victoria Marone, 2017. "Cost of Service Regulation in U.S. Health Care: Minimum Medical Loss Ratios," NBER Working Papers 23353, National Bureau of Economic Research, Inc.
    6. Dalton, Christina Marsh & Warren, Patrick L., 2014. "Outsourcing Intensity and Ownership: Theory and Evidence from California General Care Hospitals," MPRA Paper 61949, University Library of Munich, Germany.
    7. Oliver Tiemann & Jonas Schreyögg, 2012. "Changes in hospital efficiency after privatization," Health Care Management Science, Springer, pages 310-326.
    8. Leone, Andrew J. & Van Horn, R. Lawrence & Wedig, Gerard J., 2005. "Abnormal returns and the regulation of nonprofit hospital sales and conversions," Journal of Health Economics, Elsevier, vol. 24(1), pages 113-135, January.
    9. Bonnie K. Fox Garrity & Roger C. Fiedler, 2016. "A Quantitative Analysis of the Effects of Postsecondary Institution Conversions from Not-For-Profit to For-Profit," Public Organization Review, Springer, vol. 16(3), pages 371-389, September.
    10. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Quality competition with profit constraints: Do non-profit firms provide higher quality than for-profit firms?," NIPE Working Papers 05/2011, NIPE - Universidade do Minho.
    11. Brigitte Dormont & Carine Milcent, 2012. "Comment évaluer la productivité et l'efficacité des hôpitaux publics et privés ? Les enjeux de la convergence tarifaire," Économie et Statistique, Programme National Persée, vol. 455(1), pages 143-173.
    12. Ben-Ner Avner & Karaca-Mandic Pinar & Ren Ting, 2012. "Ownership and Quality in Markets with Asymmetric Information: Evidence from Nursing Homes," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-33, October.
    13. Pizzini, Mina J., 2006. "The relation between cost-system design, managers' evaluations of the relevance and usefulness of cost data, and financial performance: an empirical study of US hospitals," Accounting, Organizations and Society, Elsevier, vol. 31(2), pages 179-210, February.
    14. repec:hal:journl:halshs-00879787 is not listed on IDEAS
    15. Burkey, Mark L., 2008. ""Selling the store" to the HMO: A life insurance contract for optimal provision of care," Journal of Economic Behavior & Organization, Elsevier, vol. 65(1), pages 118-132, January.
    16. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2012. "Quality competition with profit constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 642-659.
    17. Lien, Hsien-Ming & Chou, Shin-Yi & Liu, Jin-Tan, 2008. "Hospital ownership and performance: Evidence from stroke and cardiac treatment in Taiwan," Journal of Health Economics, Elsevier, vol. 27(5), pages 1208-1223, September.
    18. repec:hal:journl:halshs-00833207 is not listed on IDEAS
    19. repec:eee:ecoedu:v:58:y:2017:i:c:p:43-54 is not listed on IDEAS
    20. Giuseppe Moscelli & Hugh Gravelle & Luigi Siciliani & Nils Gutacker, 2017. "The effect of hospital ownership on quality of care: evidence from England," Working Papers 145cherp, Centre for Health Economics, University of York.
    21. Mareike Heimeshoff & Jonas Schreyögg & Oliver Tiemann, 2014. "Employment effects of hospital privatization in Germany," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(7), pages 747-757, September.
    22. repec:dau:papers:123456789/7738 is not listed on IDEAS

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