Cost comparisons of forprofit and nonprofit hospitals

Abstract

The special organizational and institutional structure of the hospital industry has implications for cost differences between forprofit and nonprofit hospitals. These implications are developed and tested on a panel of data on California hospitals for which as estimate of the cost of admitting physician services could be made. Forprofit hospitals in general are significantly less costly than nonprofits after accounting for differences in case mix, but the interpretation of this result is complicated by the possibility of systematic overtreatment of certain case types by independent, or nonchain forprofits. The paper argues that the more appropriate comparison is between nonprofits and chain forprofits. The latter type of hospital has a distribution of cases which is similar to that of nonprofits but is less costly than both nonprofit and nonchain forprofit hospitals.