The Effect of Soft Budget Constraints on Access and Quality in Hospital Care

Yu-Chu Shen, Karen Eggleston

NBER Working Paper No. 14256
Issued in August 2008
NBER Program(s):The Health Care Program, The Health Economics Program

Given an increasingly complex web of financial pressures on providers, studies have examined how the hospitals' overall financial health affect different aspects of hospital operation. In our study, we analyze this issue focusing on hospital access and quality by introducing an important aspect of the financial incentives, soft budget constraints (SBC), that takes into account both hospital's current and past financial health as well as their expected financial outlook (i.e., whether there is a sponsoring organization to bail them out). We develop a conceptual framework of SBC by considering the resultant incentives on cost control and quality improvement innovations; and examine the effect of SBC on the following aspects of access and quality: safety net service survival and AMI mortality rates. We find that hospitals with softer budget constraints are less likely to shut down safety net services. In addition, hospitals with softer budget constraints appear to have better mortality outcomes, suggesting that the reduced incentive to engage in cost control innovation as the result of SBC outweighs the dampening effect of quality improvement innovation.

download in pdf format
   (462 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14256

Published: Yu-Chu Shen & Karen Eggleston, 2009. "The effect of soft budget constraints on access and quality in hospital care," International Journal of Health Care Finance and Economics, vol 9(2), pages 211-232.

Users who downloaded this paper also downloaded* these:
Robinson and Torvik w12133 A Political Economy Theory of the Soft Budget Constraint
Grossman and Helpman w12332 Separation of Powers and the Budget Process
Eggleston, Shen, Lau, Schmid, and Chan w12241 Hospital Ownership and Quality of Care: What Explains the Different Results?
Romley and Goldman w13730 How Costly Is Hospital Quality? A Revealed-Preference Approach
Duggan w7789 Hospital Ownership and Public Medical Spending
NBER Videos

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

Contact Us