Managed Care

Do for-profit hospitals reduce safety net services?

Social safety net services are necessary, but often unprofitable for hospitals. Is the expansion of HMOs and for-profit hospitals jeopardizing these safety net servies? This is the question researcher Yu-Chu Shen investigates.

To test this hypothesis, Shen examines how changes in the market share of HMOs and for-profit HMOs affects probability of shutting down following safety net services: emergency department, HIV/AIDS services, inpatient substance abuse services, and outpatient substance abuse services. “Safety net services rely more on public finance than other types of hospital services. For example, almost two- thirds of revenue for substance abuse treatments comes from public sector…and less than 40% of emergency department revenue comes from private health insurance.”

HMO penetration is calculated using Laurence Baker‘s data. A proportional hazard specification models the probability each of the 4 safety net services shuts down as a function of whether the hospital is in a market with a high level of managed care and whether or not the hospital is for-profit.

The author finds that HMO penetration in a local market has no effect on the probability safety net services are offered. However, the probability of “shutting down safety net services do differ by levels of for-profit HMO share. In particular, in the current environment (post-2000), a higher for-profit HMO presence is associated with a higher risk of shutting down all safety net services examined in this study except for HIV/AIDS services.”

  • Yu-Chu Shen (2009) “Do HMO and its for-profit expansion jeopardize the survival of hospital safety net services?” Health Economics, 18(3):305-320.


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