The Privatization of Public Hospitals: Its Impact on Financial Performance

Abstract

This study examined the effects of public hospitals' privatization on financial performance. We used a sample of nonfederal acute care public hospitals from 1997 to 2013, averaging 434 hospitals per year. Privatization was defined as conversion from public status to either private not-for-profit (NFP) or private for-profit (FP) status. Financial performance was measured by operating margin (OM) and total margin (TM). We used hospital level and year fixed effects linear panel regressions with nonlagged independent and control variables (Model 1), lagged by 1 year (Model 2), and lagged by 2 years (Model 3). Privatization to FP was associated with 17% higher OM (Model 2) and 9% higher OM (Model 3), compared with 3%, 4%, and 6% higher OM for privatization to NFP for all three Models, respectively. Privatization to FP was associated with 7% higher TM (Model 2) and privatization to NFP was associated with 2% higher TM (Model 3).

Does the provision of high-technology health services change after the privatization of public hospitals?

“…For Hypothesis 1, privatization was a binary variable recoded as "1" if the hospital converted to private status (the year of privatization and following years were recoded as 1) and "0" if the hospital remained public (12,14). For Hypothesis 2, privatization had two dummy variables.…”

“…The dummy variable "privatization to for-profit status" was recoded as "1" if the hospital converted to private for-profit (the year of privatization and following years were recoded as "1") and "0" if the hospital stayed public. The other dummy variable "privatization to not-for-profit status" was recoded as "1" if the hospital converted to private not-forprofit (the year of privatization and subsequent years were coded as "1") and "0" if the hospital stayed public (12,14,43).…”

“…It has been one of the strategic moves chosen by government entities that own public hospitals experiencing financial difficulties or in need of some financial stability (7,8). Previous research has demonstrated that privatization may result in improved financial performance (2,(9)(10)(11)(12), efficiency (2,13,14), and productivity (14). However, other studies have indicated that privatization may lead to a decline in health care quality (10,15,16) and a reduction in access to care (2,16).…”

For-Profit Hospitals Have Thrived Because of Generous Public Reimbursement Schemes, Not Greater Efficiency: A Multi-Country Case Study

“…9,21,23 For-profit hospitals tend to charge higher prices than public and nonprofit hospitals. 19,23,24 This, in part, may reflect their wider profit margins 25,26 and higher overhead and capital expenditures. [27][28][29][30] Despite higher costs to the payor, for-profit hospitals often outsource and are thus able to minimize the number of employed staff -particularly non-physician staff.…”

“…25,[37][38][39][40][41] Third, while some cross-sectional studies have found that forprofits are less efficient because they tend to acquire inefficient public and nonprofit organizations, 9 other longitudinal studies suggest that for-profit entities streamline the public and nonprofit hospitals they acquire and thereby achieve greater efficiency. 26,33 Research Questions If, as the literature suggests, consistently superior performance on patient outcomes or economic efficiency does not explain the growth of for-profit hospitals, other factors must be explored. financing costs are lower.…”