Ownership Structure, Capital Structure, and Patient Profitability of Investor-Owned and Nonprofit Hospitals

Abstract

The United States hospital system is composed of nonprofit, investor-owned, and government-owned hospitals. Unlike other industries where the three varying ownership control types operate and control different market niches, hospitals of these different ownership structures directly compete with one another. This paper examines the cost to patients and/or health plan insurers for medical care, as well as hospital profitability of the two most common ownership control types, not-for-profit (nonprofit) and investor-owned. The study controls for patient mix and other operational differences. Subsequently, the analysis focuses on how patient-day rates (cost) and hospital profitability relate to variations in capital structure between non- profit and investor-owned hospitals. The findings indicate that nonprofit hospitals have significantly higher patient-day rates than investor-owned hospitals. In contrast, investor-owned hospitals realize significantly higher profit margins. The results fail to show a significant correlation between capital structure and patient-day rates, however, a significant negative correlation exists between debt use and profit margins. In controlling for the patient mix, the data show nonprofit and investor-owned hospitals have distinct profiles regarding the profitability of intensive medical care services compared to general routine care services. Moreover, hospitals with increased Medicare and Medicaid insured patients experience lower patient-day rates and profit margins.