Further evidence on the relative performance of proprietary and nonprofit hospitals

Proposed implementation of health systems agencies (HSA) gives potentially large roles to consurers and local government officials. The paper argues that there will be a tendency for HSAs to discriminate against proprietary hospitals. It is important, therefore, to have information on whether proprietaries belong in an efficient hospital system. The paper discusses and extends the empirical evidence on the relative dynamic efficiency of proprietary and nonprofit hospitals in responding to changes in the economic environment. It is shown that the models used by Lave and Lave and by Steinwald and Neuhauser to generate empirical evidence can give different policy recommendations depending on the relative size of the proprietary and nonprofit bed stocks. An alternative model is devised which produces unambiguous policy recommendations. The empirical model is applied to four six-year cross sections for the years 1954-1971. Some of the conclusions reached are 1) that proprietary bed stocks are proportionally more responsive than nonprofit stocks to population changes, 2) that the nonprofit stocks show a larger absolute response, and 3) that income growth is not strongly associated with conversion to nonprofit status. A more complex model is estimated including some variables to capture the effect of the Hill-Burton program. The 1964 program shift away from a rural emphasis is expected to show in the growth pattern of hospital stocks. Analysis of the data, however, fails to show significantly different behavior before and after the shift. Based on the similarity of the regression equations, new equations are run on pooled data. The pooled regressions explain 90 per cent of the variation in nonprofit bed stock growth, but the explanation of proprietary behavior remains meager. Based on analysis of the pooled data, proprietaries responded positively to population growth while the nonprofit bed stock showed a negative association. An explanation is that the Hill-Burton program caused beds to be built where population was declining. Proprietary and nonprofit stocks grew with ability to pay and the proprietary stocks were proportionately more responsive. Both types of bed stocks showed an adjustment to bed shortages with the proportional responses being insignificantly different. Overall, it is concluded that proprietary bed stocks are more responsive to population changes and changes in ability to pay than nonprofit stocks. No numbers when the ability to pay increases. The lack of significantly different patterns before and after 1964 suggests that the shift in Hill-Burton emphasis made little or no difference in proportional bed stock changes. Short-run expansion of nonprofits in bed shortage areas was proportionally no greater than the expansion of the unsubsidized proprietaries. The central conclusion is that proprietary hospitals have a significant role in an efficient hospital system. Planning and regulating agencies must take care to guard the proprietary role against pressures inherent in their own structures...