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Does the Profit Motive Make Jack Nimble? Ownership Form and the Evolution of the U.S. Hospital Industry

We examine the evolving structure of the U.S. hospital industry since 1970, focusing on how ownership form influences entry and exit behavior. We develop theoretical predictions based on the model of Lakdawalla and Philipson, in which for-profit and not-for-profit hospitals differ regarding their objectives and costs of capital. The model predicts for-profits would be quicker to enter and exit than not-for-profits in response to changing market conditions. We test this hypothesis using data for all U.S. hospitals from 1984 through 2000. Examining annual and regional entry and exit rates, for-profit hospitals consistently have higher entry and exit rates than not-for-profits. Econometric modeling of entry and exit rates yields similar patterns. Estimates of an ordered probit model of entry indicate that entry is more responsive to demand changes for for-profit than not-for-profit hospitals. Estimates of a discrete hazard model for exit similarly indicate that negative demand shifts increase the probability of exit more for for-profits than not-for-profits. Finally, membership in a hospital chain significantly decreases the probability of exit for for-profits, but not not-for-profits.

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File URL: https://student-3k.tepper.cmu.edu/gsiadoc/wp/2005-E55.pdf
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2005-E55.

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Date of creation: Oct 2005
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Handle: RePEc:cmu:gsiawp:1128549369
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

Order Information: Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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  1. Mary E. Deily & Niccie L. McKay & Fred H. Dorner, 2000. "Exit and Inefficiency: The Effects of Ownership Type," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 734-747.
  2. Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
  3. Fred Goldman & Michael Grossman & Susan W. Nesbitt & Pamela Mobilia, 1992. "Determinants of Interest Rates on Tax-Exempt Hospital Bonds," NBER Working Papers 4139, National Bureau of Economic Research, Inc.
  4. Donald F. Vitaliano & Mark Toren, 1996. "Hospital Cost and Efficiency in a Regime of Stringent Regulation," Eastern Economic Journal, Eastern Economic Association, vol. 22(2), pages 161-175, Spring.
  5. Lynk, William J, 1995. "Nonprofit Hospital Mergers and the Exercise of Market Power," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 437-61, October.
  6. Pauly, Mark V & Redisch, Michael, 1973. "The Not-For-Profit Hospital as a Physicians' Cooperative," American Economic Review, American Economic Association, vol. 63(1), pages 87-99, March.
  7. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
  8. Mahmud Hassan & Gerard Wedig & Michael Morrisey, 2000. "Charity Care by Non-profit Hospitals: The Price of Tax-exempt Debt," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(1), pages 47-62.
  9. Frank A. Sloan & Gabriel A. Picone & Donald H. Taylor, Jr. & Shin-Yi Chou, 1998. "Hospital Ownership and Cost and Quality of Care: Is There a Dime's Worth of Difference?," NBER Working Papers 6706, National Bureau of Economic Research, Inc.
  10. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  11. Becker, Edmund R & Sloan, Frank A, 1985. "Hospital Ownership and Performance," Economic Inquiry, Western Economic Association International, vol. 23(1), pages 21-36, January.
  12. Edward C. Norton & Douglas O. Staiger, 1994. "How Hospital Ownership Affects Access to Care for the Uninsured," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 171-185, Spring.
  13. Sloan, Frank A, et al, 1990. "The Demise of Hospital Philanthropy," Economic Inquiry, Western Economic Association International, vol. 28(4), pages 725-43, October.
  14. Keeler, Emmett B. & Melnick, Glenn & Zwanziger, Jack, 1999. "The changing effects of competition on non-profit and for-profit hospital pricing behavior," Journal of Health Economics, Elsevier, vol. 18(1), pages 69-86, January.
  15. Henry Hansmann & Daniel Kessler & Mark McClellan, 2002. "Ownership Form and Trapped Capital in the Hospital Industry," NBER Working Papers 8989, National Bureau of Economic Research, Inc.
  16. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier.
  17. Zuckerman, Stephen & Hadley, Jack & Iezzoni, Lisa, 1994. "Measuring hospital efficiency with frontier cost functions," Journal of Health Economics, Elsevier, vol. 13(3), pages 255-280, October.
  18. Mark Duggan, 2002. "Hospital Market Structure and the Behavior of Not-For-Profit Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 433-446, Autumn.
  19. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November.
  20. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
  21. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 51(1), pages 91-112, 03.
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