We test the effect of report cards on consumer choice in the HMO market. Federal employees were provided with report cards on a limited basis in 1995 and then on a widespread basis in 1996. Exploiting this natural experiment, we find that subjective measures of quality and coverage influence plan choices, after controlling for plan premiums, expected out of pocket expenses and service coverages. The effect is stronger within a small sample of new hires compared to a larger sample of existing federal employees. We also find evidence that report cards increase the price elasticity of demand for health insurance.

Preliminary -Please do not quote without the authors' permission.This study uses data from hospitals to provide evidence on the hypothesis that insider representation on nonprofit boards leads to the expropriation of organizational resources (e.g., donations). We find that both the level and change in CEO pay are positively associated with CEO power on the board. While these results are consistent with the "managerial power" hypothesis, they might also reflect unobservable factors that are jointly correlated with CEO power and compensation. Additional analysis suggests that the compensation premium is not excess pay, but reflects unmeasured CEO talent and risk that accompanies a hospital's decision to allocate power to the manager. Consistent with this interpretation, we find that donations increase where the CEO and other managers are voting members of the board. Also, consistent with standard agency theory, the incidence of performance-based incentives increases with the power of the CEO. We do find that donations systematically decrease with physician representation on the board, suggesting that a potentially important conflict exists between donors and physicians.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access ABSTRACT This study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a one-period stochastic, value-maximization model. Separate models are developed for for-profit and not-for-profit hospitals. Hospital debt-to-assets ratios are analyzed empirically using a cross-section of data from the American Hospital Association. Although the effect on capital structure of hospital reliance on cost-based reimbursement cannot be signed theoretically, in both for-profit and not-for-profit cases, a higher cost-based share leads to higher leverage. Factors associated with high bankruptcy risk (e.g., earnings volatility) cause hospitals to take on less debt. THE HOSPITAL INDUSTRY EXHIBITS two prominent characteristics that haveunique implications for its capital structure. First, the majority of hospitals are organized as private not-for-profit (NFP) institutions. Since there is no applicable corporate income tax, any risk of bankruptcy might imply that the NFP hospital would select an all-equity hospital structure. Yet it is a stylized fact that almost all NFP hospitals have debt obligations. At the same time, there exists a sizeable minority of hospitals operated by government or as for-profit organizations. Forprofit hospitals are subject to all tax privileges and obligations applicable to forprofit enterprises in other sectors. Thus, the industry provides a laboratory for analysis of the effect of ownership on organizations' capital structures.A second unique feature of the industry is that almost all hospital revenue is derived from public and private insurers (Waldo et al. [21]). At least until very recently, insurers in this industry paid hospitals on either a retrospective-cost or a retrospective-charge basis.' Insurer payment practices, in turn, affect the relative prices of debt and equity. Specifically, Medicare and Medicaid, by far the largest government insurers and about a third of Blue Cross plans, the cost payors, reimburse NFP and public hospitals for "their" share of actual interest and depreciation expense incurred but do not pay such hospitals an explicit Birmingham, respectively. This project was funded by Grant HS05176 from the National Center for Health Services Research and Health Care Technology Assessment. We thank the Hospital Research and Educational Trust for providing access to the data. We are grateful to Robert A. Taggart, Jr., for comments on an earlier draft. 1 Recently, there has been a growth in prospective payment of hospitals. However, even under such plans, capital payment remains a...

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Draft: October, 1 2003 Preliminary -Please do not quote without the authors' permission.In contrast to managers of for-profit corporations, nonprofit (NP) managers do not face disciplinary pressures from hostile takeovers, concentrated shareholders, or equity-based compensation plans. Past authors have argued that the lack of alternative control mechanisms implies that NP boards should contain few, if any, managers as voting members. This study finds that when NP hospital CEOs are voting members of their boards, their compensation is about 10 percent higher than when they are ex officio members or simply staff (controlling for a rich set of economic factors that are expected to produce crosssectional variation in CEO compensation). The results are consistent with the hypothesis that NP boards are more effective at controlling managerial agency problems when they do not contain internal managers as voting members. While this interpretation is subject to the usual caveats about potential omitted variables and endogeneity biases, these problems are arguably less severe in this study than in related studies from the for-profit sector.