Working Paper: NBER ID: w11705
Authors: Sujoy Chakravarty; Martin Gaynor; Steven Klepper; William B. Vogt
Abstract: 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.
Keywords: hospital industry; for-profit hospitals; not-for-profit hospitals; entry and exit behavior
JEL Codes: I11; L11; L2; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased demand (J23) | higher entry rates for for-profit hospitals (L39) |
| increased demand (J23) | higher entry rates for not-for-profit hospitals (L39) |
| negative demand shocks (E31) | higher exit rates for for-profit hospitals (L33) |
| negative demand shocks (E31) | higher exit rates for not-for-profit hospitals (L39) |
| system membership (P13) | decreases probability of exit for for-profit hospitals (L39) |