Analysis of the rationale for, and consequences of, nonprofit and for-profit ownership conversions

Abstract

Objectives: To examine percursors to private hospitals conversion, both from nonprofit status to for-profit status and from for-profit to nonprofit status, as well as the effect of hospital conversions on hospital profitability, efficiency, staffing, and the probability of closure.

Data sources: The Health Care Financing Administration's Medicare Cost Reports and the American Hospital Association's Annual Survey of Hospitals.

Study design: Bivariate and multivariate analyses comparing conversion hospitals to nonconversion hospitals over time were conducted.

Data extraction methods: The study sample consisted of all private acute care hospital conversions that occurred from 1989 through 1992.

Principal findings: Hospitals that converted had significantly lower profit margins prior to converting than did nonconversion hospitals. This was particularly true for nonprofit to for-profit conversions. After converting, both nonprofit and for-profit hospitals significantly improved their profitability. Nonprofit to for-profit hospital conversions were associated with a decrease in the ratio of staff to patients. No association was found between for-profit to nonprofit conversion and staff-to-patient ratios. The difference seems partially attributed to the fact that nonprofit hospitals that converted had higher staff ratios than the industry average. For-profit to nonprofit hospital conversions were associated with an increase in the ratio of registered nurses to patients and administrators to patients, despite the fact that nonprofit and for-profit hospitals did not differ in these ratios.

Conclusions: The improvement in financial performance following hospital conversions may be a benefit to the community that policymakers want to consider when regulating hospital conversions.