Management Accounting Section Midyear Meeting

The Effects of Hospital Ownership on Cost Structure

• In Event: Healthcare

Abstract

We investigate the effects of hospital ownership on cost structure using data obtained from Medicare Cost Reports filed by over 2,000 U.S. acute care hospitals. The hospital industry, which accounted for 5.9 percent of 2020 U.S. GDP, is one of the few industries in which non-governmental, nonprofit (NP) firms compete directly with for-profit (FP) firms. It is important to understand factors that influence hospital cost structure because cost structure determines operating risk and it reflects managers’ capacity decisions, which have critical implications for public health and healthcare costs (Gaynor and Anderson 1995; Yonce and Barnes 2022). A hospital with a more inelastic, or rigid, cost structure (relatively higher fixed costs and lower variable costs) is more vulnerable to losses during periods of low demand; however, it can better accommodate unexpected spikes in demand. Results indicate that, on average, the elasticity of FP hospitals is more than three times larger than the elasticity of NP hospitals. We also find that NP hospital cost elasticity is increasing with demand risk; however, demand risk has no effect on the cost structure of FP hospitals. These results suggest fundamental differences in how the two types of hospitals procure resources to meet uncertain demand. Accordingly, this study should be of interest to both academic researchers and policy makers.

Authors

• Mina Pizzini, Texas State University

• Brian A. Vansant, Auburn University