Sloan F, (2000)

‘Not-For-Profit Ownership and Hospital Behaviour’

in Culyer AJ and Newhouse JP (eds), Handbook of Health Economics,
Amsterdam, North Holland.

• A literature review focusing on the US and addressing 3 questions –
• (i) Why do private not-for-profit (NFP) organizations dominate the hospital industry?
• Kenneth Arrow (1963) famously explained the dominance of NFPs as a response to uncertainty and incomplete markets for risk in markets for medical care.
• This does not, however, explain why NFPs dominate in some areas of healthcare, but not others (e.g. nursing homes and physicians’ offices).
• (ii) How do private NFPs differ from for-profits (FPs) in their behaviour?
• Profits: NFP hospitals appear to earn more profits (measured as a percentage of revenues) than FP hospitals, though there do not appear to be significant cost differences between them.
• Uncompensated care: There is evidence that ownership mix in a community affects hospitals’ uncompensated care provision. Higher FP share is associated with lower uncompensated and uninsured care (Frank et al. 1990).
• Quality: Keeler et al. (1992) found ‘similar quality overall’ between FPs and NFPs, with no difference between the two based on two quality indicators, and a higher quality level for FPs on a third measure.
• (iii) Is the private NFP form more efficient in this industry?
• Sloan et al (2000) found that NFP hospitals that converted to FP status increased their profits, but so too did FP hospitals going the other way.
• Pope (1989) suggested that when profits are positive hospitals will compete by raising expenditures on quality, thereby raising costs but not affecting efficiency. When profits are driven to zero, increasing competition will force hospitals to increase efficiency. This implies that increased competition should force NFPs to behave more like FPs.


• Sloan concludes that overall the evidence suggests that FP and NFP hospitals are far more alike than different.

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