1. Describe the differences between nonprofit and for-profit hospitals.
Economic theory states that FP hospitals will operate more efficiently due to the profit motive while NP hospitals will have higher quality of care. Many studies have examined this theory. Some research suggests that the FP form of ownership structure achieves greater productive efficiency than the NP form. Herzlinger and Krasker (1987) compare the costs and returns between six FP hospital chains and eight NP chains. Their study supports the theory that FP hospitals generate better results for society by being more efficient, invest their earnings in renewing equipment, and offer a broader range of services to patients. Cutler and Horwitz (2000) examine the conversion of NP hospitals to FP status and find that FP hospitals can cut costs and provide capital or relieve debt burden without reducing quality or cutting back on access to the poor when the conversion takes place. Their study indicates that quality is not compromised in an FP setting. Kessler and McClellan (2002) analyze data on medical expenditures and health outcomes of Medicare beneficiaries for heart attacks and find that the FP ownership form has important benefits for medical productivity.
On the other hand, other studies have found NP hospitals to be an equally or more efficient ownership form. Duggan (2000) reviews the percentages and changes of Medicaid and uninsured patients in different ownership forms over several years. He finds NP hospitals have costs and/or qualities similar to that of FPs. Duggan rejects the theory that NPs are less responsive to financial incentives than FPs. In addition, Silverman et al. (1999) find that FP hospitals have higher Medicare costs than NPs. Woolhandler and Himmelstein (1997) find that FP hospitals have higher administrative costs than NPs. In another study that looks at a hospital's conversion from NP to FP status, Picone, Chou and Sloan, (2002) find that NP...