Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?

RAND Journal of Economics
Vol. 33, No. 3
Autumn 2002
Picone, G,. Chou, S.Y., and F. Sloan
pp. 507-23

We examine how changes in hospital ownership to and from for-profit status affect quality and Medicare payments per hospital stay. We hypothesize that hospitals converting to for-profit ownership boost postacquisition profitability by reducing dimensions of quality not readily observed by patients and by raising prices. We find that 1-2 years after conversion to for-profit status, mortality of patients, which is difficult for outsiders to monitor, increases while hospital profitability rises markedly and staffing decreases. Thereafter, the decline in quality is much lower. A similar decline in quality is not observed after hospitals switch from for-profit to government or private nonprofit status.

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