TY - JOUR AU - Chakravarty,Sujoy AU - Gaynor,Martin AU - Klepper,Steven AU - Vogt,William B. TI - Does the Profit Motive Make Jack Nimble? Ownership Form and the Evolution of the U.S. Hospital Industry JF - National Bureau of Economic Research Working Paper Series VL - No. 11705 PY - 2005 Y2 - October 2005 UR - http://www.nber.org/papers/w11705 L1 - http://www.nber.org/papers/w11705.pdf N1 - Author contact info: Sujoy Chakravarty Institute for Health, Health Care Policy and Aging Research Rutgers University E-Mail: schakravarty@ifh.rutgers.edu Martin Gaynor Heinz College Carnegie Mellon University 4800 Forbes Avenue, Room 3008 Pittsburgh, PA 15213-3890 Tel: 412/268-7933 Fax: 412/268-5338 E-Mail: mgaynor@cmu.edu Steven Klepper Department of Social & Decision Carnegie Mellon University 208 Porter Hall Pittsburgh, PA 15213 E-Mail: sk3f@andrew.cmu.edu William B. Vogt 513 Brooks Hall Department of Economics Terry College of Business University of Georgia Athens, GA 30602 Tel: 706-542-3970 Fax: 706-542-3376 E-Mail: william.b.vogt@gmail.com AB - We examine the evolving structure of the U.S. hospital industry since 1970, focusing on how ownership form influences entry and exit behavior. We develop theoretical predictions based on the model of Lakdawalla and Philipson, in which for-profit and not-for-profit hospitals differ regarding their objectives and costs of capital. The model predicts for-profits would be quicker to enter and exit than not-for-profits in response to changing market conditions. We test this hypothesis using data for all U.S. hospitals from 1984 through 2000. Examining annual and regional entry and exit rates, for-profit hospitals consistently have higher entry and exit rates than not-for-profits. Econometric modeling of entry and exit rates yields similar patterns. Estimates of an ordered probit model of entry indicate that entry is more responsive to demand changes for for-profit than not-for-profit hospitals. Estimates of a discrete hazard model for exit similarly indicate that negative demand shifts increase the probability of exit more for for-profits than not-for-profits. Finally, membership in a hospital chain significantly decreases the probability of exit for for-profits, but not not-for-profits. ER -