• For-profit hospitals vs. not-for-profit hospitals

    Via Twitter:

    Sure! It’s common for health economics studies of hospital performance (cost, quality) to control for profit status. One relevant vein of literature is authored by Mark Schlesinger and Bradford Gray. See, for example, their 2006 paper in Health Affairs or this, related and ungated PDF, and the references therein. Another potential source is the 2003 literature review by Pauline Rosenau and Stephen Linder. Frank Sloan wrote the Health Economics Handbook chapter on non-profit hospital behavior. Perhaps there are more recent, key papers, though likely many of them would cite one of these, so you can use Google Scholar to help you there.

    Related to this is my Kaiser Health News column with Rex Santerre.

    Economic scholars have considered how the various organization types pursue alternative goals and behave differently regarding choices such as setting prices, quality and mix of patients (i.e., uninsured, Medicaid, Medicare, private-pay). Welfare-enhancing competitive effects along these dimensions have been observed in markets in which mixes of ownership type exist for certain kinds of health care organizations.

    In the column, we note, with citations, the rule-of-thumb that for-profits focus on cost (pushing it lower) while non-profits focus on quality (pushing it higher). Of course that’s a generalization, and the extent to which they emphasize either varies by market, as we point out.

    This, and whatever TIE’s knowledgeable readers offer in the comments or on Twitter, should be more than enough to get you started.


    • Hey Austin — I blogged about this last year when NYT ran pieces about for-profit hospitals and implied that their quality was lower.

      So, I decided to look empirically at whether for-profits have different quality performance than non-profits. Didn’t see much. See link below.

      In a prior paper that focused on hospital risk-adjusted cost, we found that indeed, for-profit hospitals were much more likely to be low cost than non-profit hospitals


    • Of course, not for profits have an enormous advantage: they don’t pay taxes (income taxes or ad valorem taxes). That was the complaint expressed loudly and often by the former CEO at HCA. Having worked with physicians (hospital-based and non hospital-based) at both for profits and not for profits, my anecdotal observations are that (1) the for profits are more concerned about costs – in ways that sometimes create friction between the hospital and the hospital-based physicians, (2) except to the extent concern about costs affects care, there’s no difference in quality of care, (3) joint ventures (e.g., surgery centers) between physicians and for profit hospitals are much more likely to be profitable than joint ventures between physicians and not for profits, and (4) for profits focus on profitability (that’s why they are called “for profit”) while not for profits focus far less on profitability and more on growth/market share (which partly explains observation (3)). Executives at for profits depend primarily on profitability and shareholder value (i.e., the appreciation in their stock options and shares of stock) for significant reward, while executives at not for profits depend primarily on size (thus the focus on growth/market share) to justify significant reward (via high compensation).

    • Thanks for the great responses. This is our dinner table conversation this week.