Profit incentives and the hospital industry: New evidence

Multivariate analysis is employed to examine the relative performance of for-profit and nonprofit hospitals using data on roughly 92% of the short-term, general medical and surgical hospitals in the US during 1984. The sample consists of 5,309 hospitals, 811 of which are owned and operated for profit. The estimation results offer no support for the property rights hypothesis that the performance of the hospital industry might be significantly improved by relying more heavily on profit incentives. From the property rights view, the best case is the finding of no significant productivity difference between for-profit and nonprofit hospitals when a restricted sample (hospitals within sizes of 250 to 290 beds) is used. In the other cases, productivity in the large sample and costs in both samples, the nonprofit hospitals are found consistently to operate in a superior economic fashion. Several potential explanations of the results are offered.