Impact of Changes in Hospital Organization Models on Local Finances

• In Event: Organizational Form

Abstract

The hospital sector, the largest component of U.S. government healthcare spending, benefits from substantial tax exemptions tied to its ownership structure. These exemptions have risen 45% over the past decade, reaching $28 billion in 2020. This paper examines the fiscal consequences of hospital ownership changes—particularly shifts between for-profit, nonprofit, and government control—on local public finances and tax policy responses.

Using hospital-level panel data from the American Hospital Association Annual Survey (2004–2019), merged with state and local government finance data and IRS records, we study three key dimensions. First, employing a LASSO variable selection framework, we identify hospital- and market-level characteristics associated with ownership changes, particularly transitions to nonprofit status. Second, we evaluate the impact of ownership changes on hospital behavior, finding no systematic increase in charity care provision following nonprofit conversions. Third, we estimate the fiscal effects of ownership transitions on local government revenues. We find that shifts to nonprofit status cause a 8% decline in local tax revenues (95% CI: –3.45%, –2.20%). Finally, leveraging an inverse-distance weighting approach, we explore spatial fiscal spillovers, documenting strategic local tax adjustments in neighboring jurisdictions following hospital conversions.

Our findings reveal that hospital tax exemptions impose significant fiscal costs and generate broader spatial spillovers, offering new insights into the intersection of hospital organization, local public finance, and the economics of nonprofit institutions.

Authors

• Meghna Paul, Georgia State University

• Federico Corredor, Georgia State University