Three essays on governance structure in the hospital industry

Abstract

An important factor in the rise of health care costs is the structure and performance of health care markets. This is an area in which policy can be particularly effective. Health care markets are characterized by complex interactions between consumers, physicians, insurers, facilities, and government agencies. Physicians, insurers, and facilities operate under a mix of objectives and governance structures. The many varieties of objectives, and governance structures can be broadly categorized as for-profit, not-for-profit, and governmental.

In the three chapters that follow I construct a theoretical framework to analyze hospital behavior and use a 30 year panel of data on Californian hospitals to assess the validity of the models and to identify the impact of governance structure on behavior. Chapter II addresses firm objectives. I find that firms have a continuum of weighting allocations, with for-profit firms placing greater weight on profit, government firms placing greater weight on social objectives, and not-for-profit firms locating in a middle ground. All three types of governance structures display overlap in their objectives.

In Chapter III, I identify patterns in hospital entry and exit. Like most manufacturing industries, entering hospitals are significantly smaller than incumbent hospitals and exiting hospitals are significantly smaller than surviving hospitals. The patterns of entry and exit for hospitals vary systematically with both governance structure and geographic diversification.

In Chapter IV, I develop a model of hospital entry that explains heterogeneous entry size and firm survival. I find entry size to be a relatively important factor in firm survival. In general entering on a larger scale increases the probability of survival. Despite this fact many firms enter relatively small. The model that I develop resolves small entry as a rational choice for uncertain firms.