An Investigation of Economic Efficiency in California Hospitals

Author: Kathryn Chang, Ph.D.

Publication: Journal of Governmental & Nonprofit Accounting

Publication Date: September 2017

Abstract:
This paper investigates variations in hospital behaviors and performance outcomes due to ownership type. Conventional economic theory predicts economic efficiency benefits from for-profit control type; however, a broad review of hospital performance literature provides empirical evidence that primarily favors nonprofit hospitals. This paper extends a theoretical model of nonprofit hospitals and develops hypotheses that predict nonprofit hospitals perform better in terms of price, cost, and service volume when compared to for-profit hospitals. Specifically, private nonprofit hospitals provide the highest volume of patient services, whereas public hospitals offer the lowest average price for a comparable service among all hospitals. Examination of a short-term, general acute care hospital sample from the state of California generally supports such conjecture. Managerial implications are also discussed.