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Ownership Form and Trapped Capital in the Hospital Industry

  • Henry Hansmann
  • Daniel Kessler
  • Mark McClellan
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    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.

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    File URL: http://www.nber.org/papers/w8989.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8989.

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    Date of creation: Jun 2002
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    Publication status: published as Glaeser, Edward L. (ed.) The governance of not-for-profit organizations, NBER Conference Report series. Chicago and London: University of Chicago Press, 2003.
    Handle: RePEc:nbr:nberwo:8989
    Note: CF HC LE
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. 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.
    2. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
    3. 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.
    4. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
    5. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    6. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
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