Dynamic Equilibrium in the Hospital Industry

We present a dynamic model of the hospital industry in which nonprofit and for-profit hospitals coexist and compete and are differentiated by their objective functions, investment technologies, and taxation rates. In our model, patients differ by income and type of insurance coverage, and choose admission to their preferred hospital, while hospitals choose investment, entry, exit, and pricing strategies. We estimate the parameters of the model with aggregate data and a GMM procedure. We then use the model to examine the effects of changes in the Medicare reimbursement system, universal health-care coverage, and taxation of nonprofits. Copyright (c) 1997 Massachusetts Institute of Technology.

[1]  Ariel Pakes,et al.  An Alternative Theory of Firm and Industry Dynamics , 1992 .

[2]  E. Ginzberg,et al.  The Exotic Geometry of Contemporary Medical Care@@@Purchasing Power in Health: Business, the State, and Health Care Politics.@@@Health Services Research: Key to Health Policy.@@@The Profit Motive and Patient Care: The Changing Accountability of Doctors and Hospitals. , 1991 .

[3]  E. Maskin,et al.  Overview and quantity competition with large fixed costs , 1988 .

[4]  A. Pakes,et al.  Markov-Perfect Industry Dynamics: A Framework for Empirical Work , 1995 .

[5]  L. Hansen.  Large Sample Properties of Generalized Method of Moments Estimators , 1982 .

[6]  D. McFadden.  Econometric Models of Probabilistic Choice , 1981 .

[7]  A. Pakes,et al.  Computing Markov Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model , 1992 .

[8]  J. Hay.  The impact of public health care financing policies on private-sector hospital costs. , 1983, Journal of health politics, policy and law.

[9]  E. Maskin,et al.  A Theory of Dynamic Oligopoly, II: Price Competition , 1985 .

[10]  T. Hoerger,et al.  'Profit' variability in for-profit and not-for-profit hospitals. , 1991, Journal of health economics.

[11]  Andrew Caplin,et al.  Aggregation and Imperfect Competition: On the Existence of Equilibrium , 1991 .

[12]  E. Keeler,et al.  Health insurance and the demand for medical care: evidence from a randomized experiment. , 1987, The American economic review.

[13]  H. Hansmann,et al.  The Role of Nonprofit Enterprise , 1980 .

[14]  D. Dranove,et al.  Pricing by non-profit institutions. The case of hospital cost-shifting. , 1988, Journal of health economics.

[15]  D S Salkever,et al.  The supply of charity services by nonprofit hospitals: motives and market structure. , 1991, The Rand journal of economics.

[16]  Richard W. Foster.  Cost-shifting under cost reimbursement and prospective payment. , 1985, Journal of health economics.

[17]  Mahmud Hassan,et al.  Hospital Investment Decisions and the Cost of Capital , 1989 .

[18]  J. Newhouse.  Toward a Theory of Nonprofit Institutions: An Economic Model of a Hospital , 1970 .

[19]  James A. Schmitz,et al.  On the Turnover of Business Firms and Business Managers , 1995, Journal of Political Economy.