Wednesday, July 2, 2008

Ranjani Krishnan and Michelle Yetman: Strategic Cost Shifting By Nonprofit Hospitals

Ranjani Krishnan and Michelle Yetman have posted Strategic Cost Shifting by Nonprofit Hospitals.  Here is the abstract:

This paper examines cost shifting behaviors by nonprofit hospitals in their publicly reported tax statements. We explore the following questions: first, do nonprofit hospitals shift costs towards patient-related program services and away from administrative and fundraising categories to improve their financial ratios to appear more efficient? Second, do economic incentives such as ability to procure future donations influence the extent of such cost shifting behavior? Third, do institutional constraints and pressures such as membership in a church system and level of charity care influence the extent of cost shifting. Finally, does the likelihood of detection influence cost shifting behaviors? We conduct an empirical test by merging two datasets: the IRS 990 forms and regulatory reports from California hospitals (OSHPD data) and test our hypotheses using 727 hospital-year observations. We find that nonprofit hospitals that obtain higher donations revenue shift costs to a greater extent, as do hospitals that face higher institutional pressures. Hospitals that face higher likelihood of detection shift costs to a lesser extent. Our results show that economic, institutional, as well as regulatory pressures drive nonprofit hospitals' cost shifting behaviors.

The findings suggest that nonprofit hospitals in California, already beleagured by accusations that they do not provide enough charity care to justify tax exemption, crunch their numbers in a way that increases the perceived levels of charity care they provide.


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