Academic journal article The American Journal of Economics and Sociology

The General NFP Hospital Model

Academic journal article The American Journal of Economics and Sociology

The General NFP Hospital Model

Article excerpt



Many researchers and policymakers view general not-for-profit (NFP) hospitals as the legitimate organizational and ownership form for hospitals and consequently develop policies that favor their dominance while limiting competition from alternative hospital forms. In this paper, guided by the path dependence approach, I aim to examine what events led to the dominance of general NFP hospitals. I do not assume one organizational form is better than the other; rather, the main aim of this paper is to encourage policymakers and researchers to examine the forces by which the general NFP hospitals became the norm rather than assume that their dominance means they are more legitimate than other forms. This paper specifically looks at what Arthur (1989) refers to as "lock-in by historical events" to understand what shaped our hospital industry. NFP hospitals benefit from preferential tax treatment. There is an opportunity cost of exempting NFP hospitals from property, sales, and income taxes. The foregone tax revenues could potentially be spent on increasing access to the uninsured by investing more in public hospitals and community health centers.

The history of the hospital industry provides us with a tool to understand the reasons that have led to the dominance of the general NFP hospital model. From the origin of hospitals, almshouses, to the Hill-Burton Act, to the Certificate-of-Need program, and to the 2003 Moratorium against specialty hospitals, all of these events when put in perspective, help us comprehend the current structure of the hospital industry. The dominance of general NFP hospitals is not an outcome of market forces; rather, it is an outcome of a sequence of events, mainly government decisions and policies that shaped the hospital industry in the US. This is evident in the variation of hospital organizational forms across countries. The United States might be unique in a sense that NFP hospitals dominate the market rather than public hospitals. In France, for example, public hospitals are the dominant form, followed by for-profit (FP) hospitals, and the least common is NFP hospitals (Milcent 2005). Similar to France, in Canada, public hospitals dominate the health care sector. However in the US, around 60 percent of hospitals are NFPs, 18 percent are FPs, and the rest are public hospitals (AHA 2008).

Recently, public and policy debates were witnessed with the proliferation of physician-owned specialty hospitals and ambulatory surgery centers and with the increasing ownership conversion of some hospitals into the FP status. Throughout these debates it was assumed by both the government and NFP hospitals that governmental policies should prefer and protect NFP hospitals against competitors, with the underlying assumption that NFPs exist to ensure that the uninsured have access to care, and to provide community services. If we reexamine history, we will discover how NFP hospitals gained their current status as the "legitimate" hospital form and the uncertainty surrounding the social benefits provided by general NFP hospitals compared to other organizational forms. From a path dependence perspective, certain events occur in history that might lead to inefficient outcomes or suboptimal alternatives to dominate and become the norm. Policymakers should not take the dominance of general NFP hospitals as the norm; rather, they should start investigating how this form became dominant, the cost of the social benefits it provided to the community, and question if new policies should continue to protect general NFP hospitals from competition. Since the Affordable Health Care Act, which is expected to extend insurance coverage to more than 90 percent of the population, has passed, can the tax exemption of NFP hospitals still be justified?

Problem Statement

In the United States, most of the debate stirred against specialty hospitals, ambulatory surgery centers, and FP hospitals is based on the argument that these organizational forms hinder the general NFP hospital's ability to subsidize unprofitable hospital services and to provide uncompensated care, despite the fact that NFP hospitals are expected to provide these services to the community in return for their tax exemption and preferential tax treatment. …

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