Hospital Investment Decisions and the Cost of Capital

Gerard J Wedig, Mahmud Hassan and Frank Sloan

The Journal of Business, 1989, vol. 62, issue 4, 517-37

Abstract: This study addresses two issues conceptually and empirically. How does hospital ownership type affect hospital investment choices? How do differences in the way hospitals are paid--cost- versus charge-based reimbursement--affect hospital investment? The authors compute cost-of-capital measures for both for-profit and not-for-profit hospitals. Whether or not hospital dependence on cost-based payment stimulates investment depends on the generosity of such payment relative to the economic cost of capital. Empirically, they find that for-profit hospital exit/entry decisions are guided by the generosity of payment to a greater extent than the not-for-profits. Copyright 1989 by the University of Chicago.

Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:62:y:1989:i:4:p:517-37

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