Date and Time
October 24, 2007
1:30 PM - 3:00 PM

Availability
Open to the public
No RSVP required

Over the past several decades, the U.S. healthcare system has undergone significant structural changes, creating an increasingly complex web of financial pressures on providers. In our study, we analyze an important aspect of the financial incentives -- soft budget constraints -- that might help explain different behaviors in otherwise similar hospitals. An organization enjoys a soft budget constraint (SBC) if it can expect to continue to operate when expenditures consistently exceed revenues, because some sponsoring organization, such as the government, provides funds to prevent going out of business.

The objective of this paper is twofold: (1) To develop metrics of soft budget constraints for the US hospital industry; (2) To analyze the role of soft budget constraints and ownership on hospitals' decisions to provide safety net services. Using a nationally representative panel of hospitals between 1990-2004, we find that government hospitals and hospitals in highly concentrated hospital markets face softer budget constraints than private hospitals and hospitals in highly competitive markets. In the second part of the analysis, we find that hospitals with softer budget constraints have lower hazard of shutting down safety services, and for-profit hospitals have higher risk of shutting down safety net services independent of the SBC effect. In addition, while SBCs are associated with lower risk of shutting down safety net services, the effect differs somewhat across the three hospital ownership types, with the weakest SBC effect observed in for-profit hospitals.