Working Paper: NBER ID: w9157
Authors: Kathleen Carey; Avi Dor
Abstract: This paper explores potential realization of gains by hospitals that are managed on a day-to-day basis by external organizations under formal contracts. It draws from the incentives literature, which postulates that managers of firms where ownership is separated from control will employ an input mix that deviates from cost minimization. While this status applies to hospitals generally, we hypothesize that specialized managerial expertise, coupled with the threat of non-renewal, will improve efficiency in hospitals that opt for contract. Secondary data obtained from the AHA Annual Surveys (1991-1998) are applied to examine the distribution of expense preference' parameters for all contract management adopters both pre- and post-adoption. These are contrasted with two control groups of hospitals drawn from the same years using propensity score methods. Results reveal allocative inefficiency among both adoption and control groups but a significantly lower change in the expense preference parameter pre- and post-adoption associated with a staffing. This suggests that changes in incentive contracts are one important strategy hospitals are using to cope with competitive pressures.
Keywords: No keywords provided
JEL Codes: D21; I11; J30; J41; L21; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Separation of ownership from control in hospitals (G34) | inefficiencies in input allocation (D61) |
| Contracted managers (facing threat of non-renewal) (M55) | align input allocation with cost-minimizing behavior (D61) |
| Contracted management (M55) | more efficient allocation of inputs (D61) |
| Contract management (L14) | reduces allocative inefficiency (D61) |
| Contract management (L14) | lower change in expense preference parameters pre and post-adoption (D12) |
| Adopters of contract management (L14) | significantly lower change in expense preference parameter associated with staffing (D12) |