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Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

Listed author(s):
  • Cory Capps
  • Dennis W. Carlton
  • Guy David

Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale would suggest that, insofar as suppression of competition would allow nonprofits to cross-subsidize care for needy populations, nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals. However, this rationale rests upon the premise that nonprofit hospitals with greater market power provide more care to the needy. In this paper, we develop a theoretical model showing that the welfare implications of an antitrust policy that favors nonprofit hospitals depends on the link between market power and charity care provision. To test the link, we use three measures of charity care—two dollar-denominated and one based on service volume—to study charity care provision by for-profit and non-profit hospitals under different competition conditions. Using detailed California data from 2001 to 2011, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care, or to offer more unprofitable services, when competition falls. Overall, while some courts have given deference to defendants’ nonprofit status, our study finds no empirical evidence that such hospitals provide greater charity care as they have greater market power.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23131.

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Date of creation: Feb 2017
Handle: RePEc:nbr:nberwo:23131
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