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Efficiency and profitability in US not-for-profit hospitals

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Listed:
  • Michael Rosko

    (Widener University)

  • Mona Al-Amin

    (Suffolk University)

  • Manouchehr Tavakoli

    (University of St. Andrews)

Abstract

This article examines the relationship between hospital profitability and efficiency. A cross-section of 1317 U.S. metropolitan, acute care, not-for-profit hospitals for the year 2015 was employed. We use a frontier method, stochastic frontier analysis, to estimate hospital efficiency. Total margin and operating margin were used as profit variables in OLS regressions that were corrected for heteroskedacity. In addition to estimated efficiency, control variables for internal and external correlates of profitability were included in the regression models. We found that more efficient hospitals were also more profitable. The results show a positive relationship between profitability and size, concentration of output, occupancy rate and membership in a multi-hospital system. An inverse relationship was found between profits and academic medical centers, average length of stay, location in a Medicaid expansion state, Medicaid and Medicare share of admissions, and unemployment rate. The results of a Hausman test indicates that efficiency is exogenous in the profit equations. The findings suggest that not-for-profit hospitals will be responsive to incentives for increasing efficiency and use market power to increase surplus to pursue their objectives.

Suggested Citation

  • Michael Rosko & Mona Al-Amin & Manouchehr Tavakoli, 2020. "Efficiency and profitability in US not-for-profit hospitals," International Journal of Health Economics and Management, Springer, vol. 20(4), pages 359-379, December.
    • Handle: RePEc:kap:ijhcfe:v:20:y:2020:i:4:d:10.1007_s10754-020-09284-0
    DOI: 10.1007/s10754-020-09284-0
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 9th November 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-11-09 12:00:00

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    More about this item

    Keywords

    Hospitals; Profits; Stochastic frontier analysis; Payment policy;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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