Tax Reform, Mixed-Entity Markets, and Hospitals

From a paper recently posted on SSRN:

When the U.S. Congress passed the Tax Cuts and Jobs Act in 2017 (the “TCJA”), it achieved a significant tax cut for corporations. In doing so, however, Congress simultaneously reshaped the landscape for mixed‐entity markets—that is, industries like healthcare and education in which nonprofit, for‐profit, and government entities coexist and compete. This is particularly true for the hospital market in which the TCJA’s provisions have subtly but decidedly tilted market conditions towards a for‐profit hospital model.

While scholars may debate the benefits of a nonprofit versus a for‐ profit entity model, the reality is that the majority of U.S. hospitals, and nearly all critical access hospitals, are nonprofits. Increased financial pressure from for‐profit competitors will likely compel these hospitals to cut critical but unprofitable services—or otherwise find ways to reduce their provision of uncompensated care. This Article contends that, by failing to adequately account for the complex interactions of a mixed‐ entity hospital market, the TCJA will increase the disparity of healthcare services in America. As mixed‐entity markets increase in prevalence, policymakers should carefully consider the nuances of such markets as they debate and implement policies that may not only trickle down but also inadvertently restructure entire industries.

darryll k. jones