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Ownership Form and Trapped Capital in the Hospital Industry


  • Henry Hansmann
  • Daniel Kessler
  • Mark McClellan


Over the past 20 years, demand for acute care hospital services has declined more rapidly than has hospital capacity. This paper investigates the extent to which the preponderance of the nonprofit form in this industry might account for this phenomenon. We test whether rates of exit from the hospital industry differ significantly across the different forms of ownership, and especially whether secular nonprofit hospitals reduce capacity more slowly than do other types of hospitals. We estimate the effect of population changes (a proxy for changes in demand) at the zip-code level between 1985 and 1994 on changes in the capacity of for-profit, secular nonprofit, religious nonprofit, and public hospitals over the same period, holding constant metropolitan statistical area (MSA) fixed effects and other 1985 baseline characteristics of residential zip codes. We find that for-profit hospitals are the most responsive to reductions in demand, followed in turn by public and religiously affiliated nonprofit hospitals, while secular nonprofits are distinctly the least responsive of the four ownership types.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:8989
    Note: CF HC LE

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    References listed on IDEAS

    1. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
    2. Henry Hansmann, 1996. "The Changing Roles of Public, Private, and Nonprofit Enterprise in Education, Health Care, and Other Human Services," NBER Chapters,in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 245-276 National Bureau of Economic Research, Inc.
    3. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 577-615.
    4. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1343-1373.
    5. 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.
    6. Daniel P. Kessler & Mark B. McClellan, 2002. "The Effects of Hospital Ownership on Medical Productivity," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 488-506, Autumn.
    7. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    8. Frank A. Sloan & Donald H. Taylor & Chris Conover, 2000. "Hospital Conversions Is the Purchase Price Too Low?," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 13-44 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Sujoy Chakravarty & Martin Gaynor & Steven Klepper & William B. Vogt, 2006. "Does the profit motive make Jack nimble? Ownership form and the evolution of the US hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 345-361.
    2. Joëlle Noailly & Sabine Visser & Paul Grout, 2007. "The impact of market forces on the provision of childcare: Insights from the 2005 Childcare Act in the Netherlands," CPB Memorandum 176, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Henry Ergas, 2009. "Providing Aged Care: The Case for Reform," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 16(2), pages 21-44.
    4. Tokunaga, Mutsumi & Hashimoto, Hideki, 2013. "Factors affecting the entry of for-profit providers into a price regulated market for formal long-term care services: A case study from Japan," Social Science & Medicine, Elsevier, vol. 76(C), pages 143-149.

    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • I1 - Health, Education, and Welfare - - Health

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