The economics of for-profit and not-for-profit hospitals

This paper examines the economics of for-profit and not-for-profit hospital s through the prism of capital acquisitions. The exercise suggests that of two hospitals that are equally efficient in producing health care, the for- profit hospital would have to charge higher prices than the not-for-profit hospital would, to break even on capital acquisitions. The reasons for this divergence are (1) the typically higher cost of equity capital that for-pr ofit hospitals face; and (2) the income taxes they must pay. The paper reco mmends holding tax-exempt hospitals more formally accountable for the socia l obligation they shoulder, in return for their tax preference.