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HCA 807 Week 3 Discussion Question One

HCA 807 Week 3 Discussion Question One


Should public health care be for-profit? Why or why not?

Among general hospitals the not-for-profit, voluntary institutions have long been predominant. The first hospitals served exclusively as charitable or public organizations for the sick and destitute who had nowhere else to go, but today’s not-for-profit hospitals have diverse origins in the missions of both religious and secular charitable organizations and the actions of civic-minded citizens seeking to improve their communities.

For-profit (or investor-owned) institutions have been distinguished from not-for-profit institutions on a variety of aspects, many of which are summarized inĀ Table 1.1. These distinctions suggest why differences in institutional behavior are often assumed to exist and whence are derived the hypotheses in the empirical literature (examined later in this report) on the comparative behavior of for-profit and not-for-profit institutions.

Theory for predicting the behavior of not-for-profit institutions is still in a relatively undeveloped state (Weisbrod, 1981; Hansmann, 1980; Easley and O’Hara, 1983), and divergent theories exist about for-profit organizations (see, for example, Williamson, 1981). Economic theories of for-profit and not-for-profit organizations are summarized in an appendix to this chapter. It should be noted, however, that two contradictory beliefs are frequently heard regarding the comparative behavior of for-profit and not-for-profit health care organizations.

One belief is that the economic incentives faced by those who control the organization are so different in for-profit and not-for-profit institutions that the two types of organizations can be expected to behave quite differently from each other. (People who hold this view differ in which type of organization they see as appropriate in health care.) The other belief is that for-profit and not-for-profit

HCA 807 Week 3 Discussion Question One

HCA 807 Week 3 Discussion Question One

organizations are not necessarily very different from each other. Some economic theorists suggest that many not-for-profit hospitals, particularly the community (as opposed to the university) variety, are through one device or another, essentially run to further the economic interests of physicians (Pauly, 1980; Pauly and Redisch,, 1973; Clark, 1980). As Sloan (forthcoming) notes, “to the extent this is so, the voluntary hospital is only a profit-seeking hospital in disguise, and there is no reason to expect it to behave much differently.” However, it is not necessary to accept this hospital-as-physician-cartel view to argue that for-profit and not-for-profit organizations that exist in a similar economic and competitive environment will behave similarly in many respects. Many observers point to examples to support the argument that there is little, if anything, that “the for-profits” are doing that cannot also be found among “the not-for-profits.” The argument then turns to whether the behavior in question is more common in one or the other sector and to whether not-for-profit organizations are being forced by competition to behave in ways that are in some sense aberrant to the not-for-profit form.

Much empirical evidence on the comparative behavior of for-profit and not-for-profit health care organizations is examined in this report. This chapter examines historical and organizational differences, as well as some factors that may attenuate the different behavioral tendencies of for-profit and not-for-profit health care organizations.

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