Objective

To examine non-profit hospitals’ financial and spending allocations when the private sector payment rate is higher than the Medicare's payment rate.

Data Sources

Hospital financial data for 2014 – 2018 from Center for Medicare and Medicaid Services Hospital Cost Reports, hospital characteristics from the American Hospital Association (AHA) Annual Survey.

Study Design

Hospital and year level fixed effects regressions modeling each hospital's 1) operating net income per discharge equivalent (DE); 2) administrative cost per DE; 3) patient care cost per DE; 4) registered nurse per bed; charity care cost per DE; and 5) provision of unprofitable services as a function of the private sector to Medicare payment ratio (PMR).

Data Collection/Extraction Methods

Hospital/year-level data from hospital cost reports merged with AHA data. Samples included general short-term hospitals with non-profit ownership, excluding critical access hospitals.

Principal Findings

Final sample included a total of 8,862 hospital-year observations, with a mean PMR of 1.62. Non-profit hospitals having a 0.1 higher PMR was associated with $257 (95% CI: $181 - $334) increase in operating net income per DE; $66 (95% CI: $32 - $99) increase in administrative cost per DE; $170 (95% CI: $120 - $220) increase in patient care cost per DE; and $18 (95% CI: $10 - $25) increase in charity care cost per DE. We found hospitals hired 0.86 (95% CI: -0.08 - 1.81) more registered nurses per 100 beds, but no evidence on providing more beds for unprofitable services, such as obstetric care, burn care, alcohol/drug abuse treatment, or psychiatric care.

Conclusions

Higher private sector prices led primarily to greater surplus and administrative cost for non-profit hospitals, and smaller increases in spending on services that will directly benefit patients.

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