Nber Working Paper Series Hospital Ownership and Financial Performance: a Quantitative Research Review

We apply meta-analytic methods to conduct a quantitative review of the empirical literature since 1990 comparing financial performance of US for-profit, not-for-profit, and government-owned general acute hospitals. We find that the diverse results in the hospital ownership literature can be explained largely by differences in authors' underlying theoretical frameworks, assumptions about the functional form of the dependent variables, and model specifications. Weaker methods and functional forms tend to predict larger differences in financial performance between not-for-profits and for-profits. The combined estimates across studies suggest little difference in cost among all three types of hospital ownership, and that for-profit hospitals generate more revenue and greater profits than not-for-profit hospitals, although the difference is only of modest economic significance. There is little difference in revenue or profits between government and not-for-profit hospitals. Yu-Chu Shen Graduate School of Business and Public Policy Naval Postgraduate School 555 Dyer Road Monterey, CA 93943 and NBER [email protected] Karen Eggleston Tufts University 303 Braker Hall 8 Upper Campus Rd. Medford, MA 02155-6722 [email protected] Introduction The hospital industry in the United States is one of the few sectors where three different types of ownership have co-existed for decades (see Figure 1). Numerous studies investigate whether private not-for-profit, for-profit and government hospitals differ in patient outcomes, costs, provision of uncompensated care, or other measures of hospital performance. Conflicting empirical results, however, have left policymakers with little clear evidence and have limited our understanding of ownership and performance in the health sector. Understanding whether profit status or public/private control affects performance is important for many policy issues, including how to structure public programs such as Medicare and the Veterans’ Administration hospital system or how to guarantee access for the uninsured. Much of current policy governing for-profit conversions in the health care market assumes that government and not-for-profit hospitals differ from for-profits in policy-relevant ways, such as providing greater access through more uncompensated care. Anyone setting out to assess the impact of an ownership-related policy change, such as tax exemption policy for not-for-profit hospitals, immediately finds that the voluminous literature on not-for-profit, for-profit and government hospitals gives frustratingly unclear and contradictory evidence, inviting subjective and selective reference to studies that support the analysts’ views. There have been some qualitative reviews of the literature to date (Sloan 2000; Needleman 2001; Malani et al 2003). In this paper, we go beyond the qualitative approach and apply formal statistical methods used in the meta-analysis literature to synthesize quantitatively studies that investigate the effect of ownership on hospital financial performance (we explore the relationship between other quality measures and ownership in a companion paper). The primary goal is to understand what factors account for the wide variation in study results, and to what