Non-profit cost-adjusting with quality as a private good

Dan Friesner and Robert Rosenman

Applied Economics, 2004, vol. 36, issue 5, 511-523

Abstract: Nonprofit firms that produce multiple outputs may lower service intensity for one patient group in response to lower reimbursements for another group. This is termed 'cost-adjusting' behaviour. Cost-adjusting implies a serious welfare transfer. The results of this analysis suggest that the potential for this welfare transfer exists; however, the ability of a firm to exploit this welfare transfer depends largely on the demand conditions present in the market. An empirical analysis finds evidence that nonprofit hospitals in Washington State do practise cost-adjusting.

Date: 2004
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DOI: 10.1080/00036840410001682223

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