Converting Hospitals from Not-for-profit to For-profit Status

David M. Cutler, Jill R. Horwitz

NBER Working Paper No. 6672
Issued in August 1998
NBER Program(s):Health Care

Over the past twenty-five years, about 330 (7 percent) of the country's 5,000 not-for-profit hospitals have converted to for-profit form This paper explores the causes and effects of conversions through two case studies -- Wesley Medical Center in Wichita, Kansas and the Columbia/HealthOne system in Denver, Colorado. We identify two primary explanations of why hospitals convert: financial concerns and board culture-perceived mission. Financial concerns are multifaceted and include expectations about future profits, anticipated problems servicing debt, and pessimism regarding the future of government reimbursement policies. The effects of these conversions are mixed. There are some efficiencies associated with conversions such as cost-cutting, increased access to capital, and debt-burden relief. However, profits are often derived from increasing reimbursement from the public sector. Further, conversions are likely to cause fragmentation of the hospital market between rich and poor. The results show that not-for-profit hospitals are likely to copy the undesirable behavior of for-profit hospitals in their markets.

download in pdf format
   (1477 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6672

Published: The Changing Hospital Inudstry: Comparing Not-for-Profit and For-Profit Institutions, Cutler, David M., pp. 45-79, (National Bureau of Economics Research, 2000).

Users who downloaded this paper also downloaded* these:
Cutler and Horwitz Converting Hospitals from No t-for-Profit to For-Profit Status Why and What Effects?
McClellan and Staiger w7324 Comparing Hospital Quality at For-Profit and Not-for-Profit Hospitals
Silverman and Skinner w8133 Are For-Profit Hospitals Really Different? Medicare Upcoding and Market Structure
Horwitz and Nichols w13246 What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix
Eggleston, Shen, Lau, Schmid, and Chan w12241 Hospital Ownership and Quality of Care: What Explains the Different Results?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us