The Capital Structure of Hospitals and Reimbursement Policy
THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 37, No. 1 (Spring 1997)
Posted: 25 Nov 1996
Empirical research has shown that hospitals have higher than average leverage, the extent of leverage is related to the extent of cost-based reimbursement, and not-for-profit hospitals are not as highly levered as their for-profit counterparts. Previous theoretical work does not unambiguously predict all of these results. This article develops a model of reimbursement policy and proves that, if reimbursement follows the indicated pattern, the Modigliani-Miller capital structure irrelevance theorem fails to hold and given reasonable restrictions upon the utility functions of not-for-profit donor/investors, each of the empirically observed results would be expected ex ante.
JEL Classification: G32, I10
Suggested Citation: Suggested Citation