The economic behavior of for-profit and nonprofit hospitals: The impact of ownership on responses to changing reimbursement and market environments

Among US hospitals, the nonprofit form is the norm, the for-profit form the exception. Economic theory generally predicts greater efficiency and different services in for-profit institutions, but prior research has found few differences between similarly situated for-profit and nonprofit hospitals. This dissertation presents a framework for identifying when nonprofit and for-profit hospital behavior might be similar or diverge and examines the behavior of for-profit and nonprofit hospitals during the 1980s, as the reimbursement and market environment for hospitals became more challenging.;I find that environmental and market factors substantially constrain the freedom of action of nonprofit and for-profit hospitals. Differences appear to be greatest in entry and exit decisions and pricing, areas in which hospital management has the most independence.;The first analysis looks at the reorganization of for-profit hospital chains in California and Florida and assesses whether the economic efficiency or market served by hospitals retained by the chains differs from those divested by the chain, either in the base period or over time. It concludes that the main response of large-chain for-profits to reimbursement pressures has been reorganization and finds no evidence of visible gains in performance.;The second analysis examines pricing by nonprofits and for-profits and cost-shifting in response to uncompensated care. It finds that base pricing by for-profit hospitals is higher than that of nonprofits, and that nonprofits, but not for-profits, increase prices in response to higher uncompensated care. The ability of for-profits to obtain high prices and of nonprofits to cost shift both appear to decline between 1986 and 1990.;The third analysis examines differences in the services offered by nonprofit and for-profit hospitals. It finds few differences among the services offered by nonprofit and for-profit hospitals once controls are introduced for size, location and teaching status. This is generally true even for services identified by hospital administrators as unprofitable, although the differences appear greatest for these services.