Does Managed Care Change the Mission of Nonprofit Hospitals? Evidence from the Managerial Labor Market

43 Pages Posted: 25 Sep 2000 Last revised: 30 Jan 2014

See all articles by Richard J. Arnould

Richard J. Arnould

University of Illinois at Urbana-Champaign - Department of Economics

Marianne Bertrand

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Kevin F. Hallock

Cornell University; National Bureau of Economic Research (NBER)

Date Written: September 2000

Abstract

This paper examines how the managerial labor market in nonprofit hospitals has adjusted to the negative income pressures created by HMO penetration. Using a panel of about 1500 nonprofit hospitals over the period 1992 to 1996, we find that top executive turnover increases following an increase in HMO penetration. Moreover, the increase in turnover is concentrated among the hospitals that have low levels of economic profitability and are more financially leveraged. While the link between top executive pay and for-profit performance measures is on average very weak, HMO penetration substantially tightens that link: as HMO penetration increases, top executives are compensated more for improving the profitability of their hospitals. These results are consistent with the view that HMO penetration increases the importance of for-profit performance objectives among not-for-profit hospitals. Boards appear to fire the managers that are least able to compete in the new competitive environment and reward incumbent managers more for achieving for-profit goals. Consistent with donors' belief that these changes represent a weakening of the nonprofit mission and not simply an attempt by altruistic boards to protect intergenerational equity, we find that public donations fall as HMO market share increases.

Suggested Citation

Arnould, Richard J. and Bertrand, Marianne and Hallock, Kevin F., Does Managed Care Change the Mission of Nonprofit Hospitals? Evidence from the Managerial Labor Market (September 2000). NBER Working Paper No. w7924. Available at SSRN: https://ssrn.com/abstract=243557

Richard J. Arnould (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
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Marianne Bertrand

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5943 (Phone)

HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kevin F. Hallock

Cornell University ( email )

Ithaca, NY 14853
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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