Abstract: Representatives of nonprofit hospitals have argued in recent merger cases that since nonprofit organizations are prohibited by law from distributing profits that nonprofit hospitals have less incentive to exercise market power than for-profit hospitals. This argument, referred to here as the "intent defense," implies that antitrust law should be applied more leniently in merger cases involving nonprofits. This dissertation examines the validity of this defense.

This paper examines the theoretical and empirical differences between the behavior of nonprofit and for-profit hospitals. Considerations are extended to include the possibility of collusion when hospitals make strategic choices. The operating objectives of the firms take into account price, quantity, and quality. Defining the quality of hospital care is discussed and applied to the empirical work. The model predicts nonprofit hospitals will provide a higher level of quality and a lower price than for-profit hospitals. Theoretically, under a collusive outcome for nonprofits, price will increase but the change in quality is indeterminate relative to a competitive, non-collusive outcome. The empirical section offers evidence of differences between nonprofit and for-profit hospital behavior. Nonprofit hospitals do provide higher quality and a lower price when compared to their for-profit rivals. It seems the competitive forces extend to the area of quality. There is evidence that increased competition between nonprofits fosters quality competition. From the for-profit perspective, quality competition appears to be provoked in markets where the for-profit competes more directly against nonprofits. This paper provides theoretical and empirical analyses of hospital interactions and how these interactions change depending upon the type of control.

An introduction to the new health care for profit. Legal differences between investor-owned and nonprofit health care institutions. Wall Street and the for-profit hospital management companies. When investor-owned corporations buy hospitals: some issues and concerns. Physician involvement in hospital decision making. Economic incentives and clinical decisions. Ethical dilemmas of for-profit enterprise in health care. Secondary income from recommended treatment: should fiduciary principles constrain physician behavior?

This paper provides evidence of the growing similarity in capacity of for-profit and nonprofit hospitals. In 1960, nonprofit hospitals maintained on average more than three times as many beds per hospital as their for-profit counterparts; following a monotonic decline in relative size, by 2000, the average nonprofit hospital was only 32% larger than the typical for-profit hospital. Hospital level data for the United States indicate that the convergence was driven primarily by industry-wide effects such as entry, exit and ownership switches, rather than expansions or downsizing of existing hospitals. These findings suggest that hospitals may in fact strategically choose their ownership type (nonprofit vs. for-profit status) and hence, their regulatory environment. Accordingly, I develop a model in which firms have identical objectives but differ in their ability to benefit from a given ownership form. In contrast to the existing literature, this approach relies neither on different ownership type-specific objectives nor on market failure to generate an equilibrium in which both ownership types are chosen by a strictly positive fraction of hospitals. Changes in the economic environment alter firms' incentives to maintain a given ownership type. This in turn induces firms to modify their capacity and encourages some firms to switch their ownership type. Crowding-out of government hospitals, population growth and increasing involvement of the government in the healthcare market may account for the convergence in size. Policymakers and legislators often exert pressure on nonprofit hospitals by tying tax-exemptions to hospital-level measures of community benefits such as free care for the indigent. I argue that by omitting industry-wide effects of a hospital's tax-exempt status on price and industry output, such pressure may both lead to convergence in size and be welfare decreasing. Analysis at the state and Metropolitan Statistical Area (MSA) level as well as at the hospital level corroborate the principal theoretical predictions.