Hospital Ownership Types and Impacts on Healthcare Finance
Some of these strategies are more committed or permanent in nature, e.g. location decisions. Hospitals can choose to locate in more affluent neighborhoods and reduce the proportion of uninsured patients. Hospitals pursue different types of investment strategies; they use mergers and acquisitions as a strategy to obtain market power and increase prices, or alter their product-mix in favor of profitable patients. Hospitals also shift costs from one patient-type to another – such as from less profitable patients to the more profitable patients. Some hospitals change their ownership-type from non-profit to for-profit and vice versa and implement significant changes to their operating strategy.
Hospitals can generate more profits from the extra service revenue by offering higher quality services when patients’ marginal valuation of quality increases with price. While the pursuit of profit induces hospitals to improve the quality and quantity of services they offer, the lack of financial strength results in a lower standard of health care services. Because profit is the difference between revenues earned and costs incurred from providing services, the key condition is that hospitals are capable of controlling costs and maintaining (or improving) the quality of care. Therefore, the net effect of hospital profitability on care quality can be either positive or negative, depending on the magnitude of each factor. To improve service quality and in turn attract more business, hospitals may need to invest in hospital infrastructure, medical equipment, and information technology. Physicians are more likely to refer patients to high-quality facilities and patients may be attracted to these facilities because hospitals offering great amenities and up-to-date technology are perceived as being committed to quality outcomes.
Our current exploration of the literature between non-financial performance measures and hospital ownership would provide further insight about ownership behavior differences. Evidence from other countries can also contribute significantly to furthering our understanding of ownership and behavior.
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