Shen, Y.C. Journal of Health Economics. Vol. 21: 901-922 2002.
Background: The hospital industry in the United States is one of the few service sectors in which different types of ownership co-exist: hospitals can organize as not-for-profit (NFP), for-profit (FP) or government-run (GOV) institutions. Between 1985 and 1999, more than 700 hospitals in the United States changed their ownership status. These hospital conversions, many of them from NFP to FP status, have captured much attention.
Objective: To explore the effect of ownership choice on patient health outcomes, using two strategies: First, examining the direct effect of ownership on levels of patient outcomes among NFP, FP and GOV hospitals that remained under the same ownership throughout 1985 to 1994; Secondly, examining the changes in patient outcomes in hospitals following ownership conversions that occurred between 1987 and 1994. The focus is on health outcomes of Medicare fee-for-service (FFS) patients after treatment for acute myocardial infarction (AMI).
Methods: Using a three-stage process, an analysis was conducted on the effect of hospital ownership choice on outcome measures: aggregated outcome measures were constructed (eg AMI mortality); regression analysis was performed, in a generalized least squares model inclusive of a full set of hospital- and area-level co-variates; and, estimate of GLS model on a sub-sample of hospitals to reduce bias in ownership status.
Results: Non-converted hospitals had a steady decline in the rates of adverse outcomes from 1985-1994. Not-for-profit hospitals had the lowest mortality rates, while GOV hospitals had the highest 30-day mortality rates. The 30-day mortality rate of FP hospitals was also higher than NFP hospitals by about 1.5-2 percentage points per 30 day period. Converting from a NFP hospital to a FP hospital increased the adverse outcomes by 1.7-2.2 percentage points, equivalent to 7-9% increases in 30-day and 1-year mortality rates.
Limitations: A limitation to this paper is the absence of good controls for patient severity in these hospital-level analyses. Although sensitivity analysis shows that the results were not driven by difference or change in patient mix, there remains a possibility that the unobserved severity of illness introduced bias in the outcome estimates.
Conclusion: Not-for-profit hospitals have, generally, a lower rate of mortality than FP hospitals, and changing from NFP to FPs is associated with an increased mortality rate. While this is strong evidence that FP hospitals produce worse health outcomes than not FP hospitals, other aspects such as the amount of charity care, efficiency or amenities were not measured
Relevance: It is frequently asserted that FP hospitals provide better care than NFP. Such an assertion is not supported by this paper. While changes are necessary for systemic redesign for healthcare in Canada, conversions of hospitals to FP seems to be ill-advised.