Behavioural differences among hospitals: It is ownership, or location?

Abstract

By about 1988, the consensus among leading health economists was that no meaningful differences existed among hospitals of differences owernership form, and this position was embraced by the Antitrust Division of the US Department of Justice. But behavioural differences among hospitals of different among hospitals of different owernership has continued to be a matter of both academic and judicial interest. Recent empirical studies have concluded that real differences do exist, while many earlier studies reached the opposite conclusion. This contradiction in finding over time, as competition intensified, is exactly opposite to what expense-preference theory would predict. We examine this apparent paradox, using a very general test of behavioural differences by hospital ownership. We find that the omission of location-specific variables can lead to biased estimates of ownership effects, and that no significant behavioural differences exist among private California hospitals in 1986-90, when this source of ownership endogeneity is eliminated.