Analysis of the rationale for, and consequences of, nonprofit and for-profit ownership conversions

To examine percursors to private hospitals conversion, both from nonprofit status to for-profit status and from for-profit to nonprofit status, as well as the effect of hospital conversions on hospital profitability, efficiency, staffing, and the probability of closure.

The Health Care Financing Administration's Medicare Cost Reports and the American Hospital Association's Annual Survey of Hospitals.

Bivariate and multivariate analyses comparing conversion hospitals to nonconversion hospitals over time were conducted.

The study sample consisted of all private acute care hospital conversions that occurred from 1989 through 1992.

Hospitals that converted had significantly lower profit margins prior to converting than did nonconversion hospitals. This was particularly true for nonprofit to for-profit conversions. After converting, both nonprofit and for-profit hospitals significantly improved their profitability. Nonprofit to for-profit hospital conversions were associated with a decrease in the ratio of staff to patients. No association was found between for-profit to nonprofit conversion and staff-to-patient ratios. The difference seems partially attributed to the fact that nonprofit hospitals that converted had higher staff ratios than the industry average. For-profit to nonprofit hospital conversions were associated with an increase in the ratio of registered nurses to patients and administrators to patients, despite the fact that nonprofit and for-profit hospitals did not differ in these ratios.

The improvement in financial performance following hospital conversions may be a benefit to the community that policymakers want to consider when regulating hospital conversions.