Mixed Markets and Public Private Hospital Miscegenation

I am studying “mixed-markets” these days.  Markets in which nonprofits and for-profits co-exist and thrive, however uncomfortably.  In those markets, nonprofits generate profit despite government prodding, and for-profits sometimes act charitably in response to government prodding.  Like health and education where nonprofits dominate but for-profits thrive anyway.  I am trying to figure out how the law should better respond when those actors marry up via joint ventures to created mixed-entities — profit making and charitable.  I am beginning to think joint ventures are tolerable only in mixed markets and that Revenue Ruling 98-15 is a hospital anti-miscegenation rule. Protecting or prohibiting (I haven’t decided which yet) mixed markets and mixed entities. Here is what Susan Rose-Ackerman said about mixed markets:

The non-profit sector in the United States relies on fee-paying individuals for a high proportion of its revenue. Given this fact, non-profits and for­ profits coexist in the same industry when each type of firm can find a stable market niche that rewards its own special strengths: ideological commit­ment in the non-profit sector; access to capital and the profit motive in the for-profit. Coexistence is also possible when the non-profit form is superior but there is a shortage of non-profit entrepreneurs. The paper next considers the entry of non-profits into sectors dominated by for-profits. Here one must distinguish between purely commercial activities and those designed to further the charity’s basic mission. In the former, non-profits should behave no differently than their for-profit competitors unless subsidies designed for mission-related activities are diverted to these activities. In the latter, the non-profits may have an advantage which reflects not ‘unfair competition’ but a judgement that their activities are worthy of subsidy. In evaluating competition between non-profits and for-profits, one must separate the issue of the appropriateness of an organization’s tax-exempt status from the impact of its actions on for-profit firms.

Recently, I ran across an interesting “data point” regarding hospital ownership in the United States.  According to an HHS study released last summer:

KEY POINTS

• The new CMS data show that nearly half of the 4,644 Medicare-enrolled hospitals are non-profit (49.2 percent), 36.1 percent are for-profit, and 14.7 percent are government-owned. Relative to skilled nursing facilities (SNFs), hospitals are more likely to be non-profit and government-owned and less likely to be for-profit. Across all ownership types, 54.6 percent are structured as corporations, 26.6 percent as limited liability companies, 2.6 percent as partnerships, and 16.2 percent as “other.”

• Using a new approach to impute ownership relationships and identify ultimate corporate parents, we find that chains with at least three hospitals constitute a majority of hospitals (56.1 percent). Mean bed size is similar between chains (170 beds) and non-chain hospitals (166 beds). Nine chains have at least 50 hospitals each.

• Individuals (as distinct from organizations) have 8.0 percent of the ownership shares of hospitals, in contrast to the much larger ownership share of nearly 50 percent by individuals of SNFs. Individuals disproportionately own more specialty hospitals (e.g., psychiatric) and fewer short-term acute care hospitals.

• The owners of SNFs and of hospitals rarely overlap, whether they be organizational or individual owners.

• Future research using these data on hospital ownership, which can be merged with other datasets on hospital characteristics, can inform discussions of competition and consolidation in health care markets, which may have impacts on health care costs, access to care, and quality.

darryll k. jones