Uncompensated Hospital Care: Charitable Mission or Profitable Business Decision?

Abstract

SUMMARYProvision of hospital uncompensated care is generally assumed to be adversely affected as increased healthcare competition decreases demand for compensated hospital services. Economic theory, however, suggests the question is more complex. Non-profit hospitals are assumed in this paper to maximize utility as a function of uncompensated care, subject to the constraint that revenues cover costs. For-profit hospitals, in contrast, are assumed to maximize profit while recognizing that failure to meet community expectations regarding provision of uncompensated care could negatively impact profits. Therefore, for-profit hospital supply of uncompensated care focuses on balancing the hospital's marginal costs and marginal benefits. These models predict that non-profit hospitals will respond to increased competition by reducing the supply of uncompensated care. In contrast, for-profit hospitals will increase the supply of uncompensated care when market demand decreases since the concurrent decrease in compensated care reduces the marginal cost of producing uncompensated care. The models also predict that for-profit hospitals will respond to changes in community expectations regarding the provision of uncompensated care. ©

Medicare Payment and Hospital Provision of Outpatient Care to the Uninsured

“…Intuitively, a drop in the price received by paying patients makes it less costly for for‐profit hospitals to provide uncompensated care. Consistent with this theory, Banks, Paterson, and Wendel () find that cuts in Medicare and Medicaid payment generosity led for‐profit California hospitals to increase their provision of uncompensated care.…”

“…(), much of the literature suggests that nonprofit and for‐profit hospitals' decisions regarding uncompensated care provision should be examined separately. Our summary emphasizes several key insights from Banks, Paterson, and Wendel (), which contrasts the different objectives of nonprofit and for‐profit hospitals and examines both types of hospitals' responses to payment changes.…”

The Effect of Managed Care on Hospitals' Provision of Uncompensated Care

“…The supply of uncompensated care by other hospitals in the area also may play a role. For example, some previous studies have found that the presence of a government hospital in the area reduced the provision of uncompensated care by other hospitals, all else equal (Banks, Paterson, and Wendel 1997;Clement, White, and Valdmanis 2002). Thus we would expect that having in the area a government hospital, a major supplier of uncompensated care, would be associated with a reduction in the provision of uncompensated care by nongovernment hospitals.…”

Independent directors' background and CSR disclosure

“…Moreover, social performance helps reduce the political cost that might arise from tarnished reputation and diminished legitimacy (Banks, Paterson, & Wendel, 1997;Porter & Kramer, 2006). Firms with political ties are subject to greater scrutiny and will be expected to take on greater social responsibility (Dickson, 2003).…”