Efficiency and profitability in US not-for-profit hospitals

Michael Rosko (), Mona Al-Amin and Manouchehr Tavakoli
Additional contact information
Michael Rosko: Widener University
Mona Al-Amin: Suffolk University
Manouchehr Tavakoli: University of St. Andrews

International Journal of Health Economics and Management, 2020, vol. 20, issue 4, No 2, 359-379

Abstract: 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.

Keywords: Hospitals; Profits; Stochastic frontier analysis; Payment policy (search for similar items in EconPapers)
JEL-codes: I1 I11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10754-020-09284-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ijhcfe:v:20:y:2020:i:4:d:10.1007_s10754-020-09284-0

Ordering information: This journal article can be ordered from
http://www.springer. ... th/journal/10754/PS2

DOI: 10.1007/s10754-020-09284-0

Access Statistics for this article

International Journal of Health Economics and Management is currently edited by Leemore Dafny, Robert Town, Mark Pauly, David Dranove and Pedro Pita Barros

More articles in International Journal of Health Economics and Management from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().