For-profit status and industry evolution in health care markets: evidence from the dialysis industry

This paper examines why for-profit dialysis providers have displaced non-profit providers over the last 25 years. Using detailed data on individual markets’ evolutions, I find that for-profit facilities were quicker to enter growing markets and slower to exit declining ones than non-profit facilities. Moreover, for-profit providers’ presence in a market had a larger impact on the exit and entry behavior of competitors. These results suggest that for-profit dialysis providers have an advantage in static competition relative to non-profit providers, and that this—rather than lower entry costs—explains their increasing prominence. Additional empirical analyses indicate that for-profits’ advantage cannot solely be attributed to efficiencies related to membership in a large, multi-facility chain. This further suggests that managerial incentives have had an economically significant impact on long-run market structure in this industry.