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Modeling Internal Decision Making Process: An Explanation of Conflicting Empirical Results on Behavior of Nonprofit and For-Profit Hospitals

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  • Carroll, Kathleen

    () (UMBC Department of Economics)

  • Ruseski, Jane

    () (University of Alberta, Department of Economics)

Abstract

This paper develops multiobjective models of hospital decision making that incorporate the internal decision process in both a for-profit and a nonprofit hospital. Predicted output and quality for a nonprofit hospital differ from those for a for-profit hospital under some conditions but converge under others. Convergence may be the result of a complex internal decision structure with decision control primarily by physicians; similar objectives across different organizational forms; or differing constraints. The mechanisms underlying these outcomes provide explanations for conflicting result in empirical studies of nonprofit and for-profit hospitals and provide a different rationale for convergence than nonprofit response to competition from for-profit hospitals. Understanding the source of convergence is important for policies directed toward the tax treatment of nonproift hospitals.

Suggested Citation

  • Carroll, Kathleen & Ruseski, Jane, 2009. "Modeling Internal Decision Making Process: An Explanation of Conflicting Empirical Results on Behavior of Nonprofit and For-Profit Hospitals," Working Papers 2009-23, University of Alberta, Department of Economics.
  • Handle: RePEc:ris:albaec:2009_023
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    File URL: https://sites.ualberta.ca/~econwps/2009/wp2009-23.pdf
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    References listed on IDEAS

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    1. Boadway, Robin & Marchand, Maurice & Sato, Motohiro, 2004. "An optimal contract approach to hospital financing," Journal of Health Economics, Elsevier, vol. 23(1), pages 85-110, January.
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    3. William M. Gentry & John Penrod, 2000. "The Tax Benefits of Not-for-Profit Hospitals," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 285-324 National Bureau of Economic Research, Inc.
    4. David Crainich & Hervé Leleu & Ana Mauleon, 2008. "The optimality of hospital financing system: the role of physician–manager interactions," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 245-256, December.
    5. Ettner, Susan L. & Hermann, Richard C., 2001. "The role of profit status under imperfect information: evidence from the treatment patterns of elderly Medicare beneficiaries hospitalized for psychiatric diagnoses," Journal of Health Economics, Elsevier, vol. 20(1), pages 23-49, January.
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    8. Mark B. McClellan & Douglas O. Staiger, 2000. "Comparing Hospital Quality at For-Profit and Not- for-Profit Hospitals," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 93-112 National Bureau of Economic Research, Inc.
    9. Virginia Wilcox-Gok, 2002. "The effects of for-profit status and system membership on the financial performance of hospitals," Applied Economics, Taylor & Francis Journals, vol. 34(4), pages 479-489.
    10. Ciliberto, Federico & Dranove, David, 2006. "The effect of physician-hospital affiliations on hospital prices in California," Journal of Health Economics, Elsevier, vol. 25(1), pages 29-38, January.
    11. David Crainich & Hervé Leleu & Ana Mauleon, 2008. "The optimality of hospital financing system: the role of physician–manager interactions," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 245-256, December.
    12. Custer, William S. & Moser, James W. & Musacchio, Robert A. & Willke, Richard J., 1990. "The production of health care services and changing hospital reimbursement : The role of hospital-medical staff relationships," Journal of Health Economics, Elsevier, vol. 9(2), pages 167-192, September.
    13. Richard Frank & David S. Salkever, 2000. "Market Forces, Diversification of Activity, and the Mission of No t-for -Profit Hospitals," NBER Chapters,in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 195-226 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kathleen Carroll & Lisa M. Dickson & Jane E. Ruseski, 2013. "Do Faculty Matter? Effects of Faculty Participation in University Decisions," UMBC Economics Department Working Papers 13-06, UMBC Department of Economics.

    More about this item

    Keywords

    hospital behavior; hospital ownership; internal decision making; physician-hospital relations;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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