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Does Managed Care Change the Management of Nonprofit Hospitals? Evidence from the Executive Labor Market

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  • Marianne Bertrand
  • Kevin F. Hallock
  • Richard Arnould

Abstract

This paper examines how the managerial labor market in nonprofit hospitals has adjusted to the financial pressures induced by HMO penetration. Using a panel of about 1,500 nonprofit hospitals over the period 1992–96, the authors find that top executive turnover increased following an increase in HMO penetration. Moreover, the increase in turnover was concentrated among the hospitals that had lower levels of economic profitability. While the link between top executive pay and for-profit performance measures was on average very weak, HMO penetration tightened that link: as HMO penetration increased, top executives were compensated more for improving the profitability of their hospitals. These results, while of limited economic magnitude, are qualitatively consistent with the view that HMO penetration has increased the weight assigned to for-profit performance in the management of not-for-profit hospitals.

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  • Marianne Bertrand & Kevin F. Hallock & Richard Arnould, 2005. "Does Managed Care Change the Management of Nonprofit Hospitals? Evidence from the Executive Labor Market," ILR Review, Cornell University, ILR School, vol. 58(3), pages 494-514, April.
    • Handle: RePEc:sae:ilrrev:v:58:y:2005:i:3:p:494-514
    DOI: 10.1177/001979390505800310
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    References listed on IDEAS

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    1. David M. Cutler, 2000. "Introduction to "The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions"," NBER Chapters, in: The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, pages 1-10, National Bureau of Economic Research, Inc.
    2. Edward L. Glaeser, 2003. "The Governance of Not-for-Profit Organizations," NBER Books, National Bureau of Economic Research, Inc, number glae03-1.
    3. Ballou, Jeffrey P. & Weisbrod, Burton A., 2003. "Managerial rewards and the behavior of for-profit, governmental, and nonprofit organizations: evidence from the hospital industry," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1895-1920, September.
    4. Laurence C. Baker & Sharmila Shankarkumar, 1998. "Managed Care and Health Care Expenditures: Evidence from Medicare, 1990—1994," NBER Chapters, in: Frontiers in Health Policy Research, Volume 1, pages 117-152, National Bureau of Economic Research, Inc.
    5. Baker Laurence C. & Shankarkumar Sharmila, 1998. "Managed Care and Health Care Expenditures: Evidence from Medicare, 1990-1994," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-37, January.
    6. Burcay Erus & Burton Weisbrod, 2003. "Objective Functions and Compensation Structures in Nonprofit and For-Profit Organizations. Evidence from the "Mixed" Hospital Industry," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 117-142, National Bureau of Economic Research, Inc.
    7. David M. Cutler & Jill Horwitz, 2000. "Converting Hospitals from No t-for-Profit to For-Profit Status Why and What Effects?," NBER Chapters, in: The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, pages 45-90, National Bureau of Economic Research, Inc.
    8. David M. Cutler, 2000. "The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions," NBER Books, National Bureau of Economic Research, Inc, number cutl00-1.
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    Cited by:

    1. Paul F. Byrne, 2014. "Do Workers Profit from the Nonprofit Tax Exemption? The Impact of State Tax Exemption on the Nonprofit Wage Differential of Hospital Workers," Public Finance Review, , vol. 42(2), pages 199-221, March.
    2. Kevin F. Hallock & Felice B. Klein, 2016. "Executive Compensation in American Unions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(2), pages 219-234, April.
    3. Timothy Besley, 2013. "What's the Good of the Market? An Essay on Michael Sandel's What Money Can't Buy," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 478-495, June.
    4. DeVaro, Jed & Maxwell, Nan & Morita, Hodaka, 2016. "Compensation and Intrinsic Motivation in Nonprofit and For-Profit Organizations," CEI Working Paper Series 2015-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    5. Daria Smarżewska & Wioletta Sylwia Wereda & Joanna Anna Jończyk, 2022. "Assessment of the Health Care System in Poland and Other OECD Countries Using the Hellwig Method," IJERPH, MDPI, vol. 19(24), pages 1-16, December.
    6. Chau, Nancy H. & Huysentruyt, Marieke, 2006. "Nonprofits and public good provision: A contest based on compromises," European Economic Review, Elsevier, vol. 50(8), pages 1909-1935, November.
    7. Jed Devaro & Dana Brookshire, 2007. "Promotions and Incentives in Nonprofit and for-Profit Organizations," ILR Review, Cornell University, ILR School, vol. 60(3), pages 311-339, April.

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