NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hospital Ownership Affects Heart Attack Care

"Areas with a presence of for-profit hospitals have approximately 2.4 percent lower levels of hospital expenditures per patient, but virtually the same patient health outcomes."

The long-standing mix of for-profit, nonprofit, and publicly-owned hospitals in the United States has led to an extensive debate over the relative merits of the three ownership forms. On one hand, the financial rewards inherent in for-profit ownership might provide incentives for hospitals to contain costs and respond effectively to patients' needs. On the other hand, because it is difficult for patients and society to evaluate quality in markets for health care, the opportunity to earn profits might lead hospitals to take advantage of patients or otherwise "cut corners."

In The Effects of Hospital Ownership on Medical Productivity (NBER Working Paper No. 8537), NBER Research Associates Daniel Kessler and Mark McClellan examine the effects of hospital ownership and other characteristics of hospital markets on hospitals' productivity. The authors analyze data on the medical expenditures, mortality, and rates of cardiac complications for the vast majority of non-rural elderly Medicare beneficiaries hospitalized for new heart attacks (acute myocardial infarction, or AMI) over the 1985-96 period. They find that areas with a presence of for-profit hospitals have approximately 2.4 percent lower levels of hospital expenditures per patient, but virtually the same patient health outcomes.

The authors conclude that this is likely caused by the spillover effects of for-profit hospitals on their nonprofit and public counterparts: the competition from for-profit hospitals may limit the nonprofits' ability to behave inefficiently. The bulk of this 2.4 percent savings in expenditures is achieved when the for-profit presence increases from near zero to only a small fraction of admissions in the area. Additional penetration of for-profits to higher market shares leads to sharply declining additional savings. Furthermore, the authors show that approximately half of the total expenditure savings achieved by the penetration of for-profit hospitals comes about through reductions in Medicare's area hospital labor cost index, an intuitively plausible mechanism through which spillovers would occur.

The authors also find that other characteristics of hospital markets affect expenditures and outcomes. Patients from areas with a substantial presence of multi-hospital systems have slightly less costly care, without experiencing any worse outcomes.

Conversely, patients from areas with a substantial presence of teaching hospitals receive slightly more costly care, but experience significantly better health outcomes. Using their estimates of these effects, the authors find that the additional treatment for AMI delivered in areas with a substantial presence of teaching hospitals, divided by the decreased probability that the patient will die within one year which is attributable to the presence of those teaching hospitals, yields an expenditure-to-benefit ratio of approximately $59,000 per year of life saved - with no significant increase in cardiac complications rates. This indicates that the additional survivors are not in markedly worse health.

The authors caution that they only evaluate the effects of hospital ownership on one facet of health care markets: hospital productivity. Other studies find that ownership may affect important social and economic outcomes, such as hospitals' provision of uncompensated or charity care, or the impact of Medicare's complex regulated price system. Furthermore, they only evaluate the effects of ownership for one illness and one patient population; the effects may be different in other settings. Finally, they acknowledge that their conclusions about the effects of ownership are necessarily limited by the incompleteness of their measures of health outcomes, which may fail to capture fully all of the health consequences of differences in medical care.

-- David R. Francis


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