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Non-profit cost-adjusting with quality as a private good

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  • Dan Friesner
  • Robert Rosenman

Abstract

Nonprofit firms that produce multiple outputs may lower service intensity for one patient group in response to lower reimbursements for another group. This is termed 'cost-adjusting' behaviour. Cost-adjusting implies a serious welfare transfer. The results of this analysis suggest that the potential for this welfare transfer exists; however, the ability of a firm to exploit this welfare transfer depends largely on the demand conditions present in the market. An empirical analysis finds evidence that nonprofit hospitals in Washington State do practise cost-adjusting.

Suggested Citation

  • Dan Friesner & Robert Rosenman, 2004. "Non-profit cost-adjusting with quality as a private good," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 511-523.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:5:p:511-523
    DOI: 10.1080/00036840410001682223
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    References listed on IDEAS

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    1. Paul J. Gertler & Donald M. Waldman, 1990. "Quality Adjusted Cost Functions," NBER Working Papers 3567, National Bureau of Economic Research, Inc.
    2. Martin Gaynor & Gerard F. Anderson, 1991. "Hospital Costs and the Cost of Empty Hospital Beds," NBER Working Papers 3872, National Bureau of Economic Research, Inc.
    3. Robert Rosenman & Tong Li & Dan Friesner, 2000. "Grants and cost shifting in outpatient clinics," Applied Economics, Taylor & Francis Journals, vol. 32(7), pages 835-843.
    4. Gertler, Paul J & Waldman, Donald M, 1992. "Quality-Adjusted Cost Functions and Policy Evaluation in the Nursing Home Industry," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1232-1256, December.
    5. Dor, Avi & Farley, Dean E., 1996. "Payment source and the cost of hospital care: Evidence from a multiproduct cost function with multiple payers," Journal of Health Economics, Elsevier, vol. 15(1), pages 1-21, February.
    6. Glazer, Jacob & McGuire, Thomas G, 1994. "Payer Competition and Cost Shifting in Health Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 71-92, Spring.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Steffen Burchhardt & Christoph Starke, 2010. "Target-Group and Quality Decisions of Inequity-Averse Entrepreneurs," FEMM Working Papers 100011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    2. repec:ebl:ecbull:v:9:y:2007:i:10:p:1-14 is not listed on IDEAS
    3. Dan Friesner & Chris Stevens, 2007. "Ownership and rent-seeking behavior in specialty health care practices," Economics Bulletin, AccessEcon, vol. 9(10), pages 1-14.

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