Hospital Ownership Type and Service Provision

Nonprofit hospitals are argued to differ little from their for-profit counterparts in the provision of care yet they enjoy tax-exempt status and face almost no requirements. Previous research on ownership of hospitals has largely focused on financial measures such as costs, profits and responsiveness to financial pressure however there is very little literature on differences between hospitals on dimensions other than financial measures such as service provision.

In this work, I estimate the valuations hospitals assign to service provision relative to the value they assign to profits by hospital ownership, (for-profit, nonprofit or government owned) in a structural way and present evidence that valuations differ significantly by ownership type. The estimates are obtained by comparing the profits hospitals would have made had they provided the service and the costs had they not provided the service to what was actually done, which is calculated using demand models. Hence, the analysis is conducted in two steps. First, I estimate a discrete choice model of demand for hospitals, taking into account patient and hospital characteristics. The second step is to use the estimated parameters from this demand system to find hospital demand and profits had they provided an additional service or had they not provided a service that is currently provided and estimate the values hospitals assign to service provision relative to profits using the fact that hospital's service availability choice should be the one that maximizes its objective function.

The analysis employs two data sets from 2004-2005. Patient characteristics are obtained from State Inpatient Dataset of 9 states (Arkansas, Arozina, Florida, Iowa, New Jersey, New York, Rhose Island, Washington, Wisconsin), which covers 58 hospital referral regions, 1146 hospital-years in the sample, includes major diagnostic categories, insurance type, admission type, location, age, gender and race of the patient. Hospital characteristics are obtained from American Hospital Association Survey. Hospital characteristics include service availability dummies, control type, teaching status, bed size, number of nurses per bed and location.

Preliminary results show that not-for-profits value providing services, especially unprofitable services significantly more than for-profits. Results show that not-for-profit hospitals have different objectives from their for-profit counterparts.