Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?

Posted: 2 Sep 2002

See all articles by Gabriel Picone

Gabriel Picone

Department of Economics

Shin-Yi Chou

Lehigh University - Department of Economics; National Bureau of Economic Research (NBER)

Frank A. Sloan

Duke University - Center for Health Policy, Law and Management; Duke University, Fuqua School of Business-Economics Group; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

We examine how changes in hospital ownership to and from for-profit status affect quality and Medicare payments per hospital stay. We hypothesize that hospitals converting to for-profit ownership boost postacquisition profitability by reducing dimensions of quality not readily observed by patients and by raising prices. We find that 1-2 years after conversion to for-profit status, mortality of patients, which is difficult for outsiders to monitor, increases while hospital profitability rises markedly and staffing decreases. Thereafter, the decline in quality is much lower. A similar decline in quality is not observed after hospitals switch from for-profit to government or private nonprofit status.

Suggested Citation

Picone, Gabriel and Chou, Shin-Yi and Sloan, Frank A., Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?. RAND Journal of Economics, Vol. 33, Autumn 2002. Available at SSRN: https://ssrn.com/abstract=324980

Gabriel Picone

Department of Economics ( email )

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Shin-Yi Chou

Lehigh University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Frank A. Sloan (Contact Author)

Duke University - Center for Health Policy, Law and Management ( email )

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United States
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919-684-6246 (Fax)

Duke University, Fuqua School of Business-Economics Group ( email )

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United States

Duke University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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