Hospital Market Structure and the Behavior of Not-For-Profit Hospitals: Evidence From Responses to California's Disproportionate Share Program

I exploit a change in hospital financial incentives to examine whether the behavior of private not-for-profit hospitals is systematically related to the share of nearby hospitals organized as for-profit firms. My findings demonstrate that not-for-profit hospitals in for-profit intensive areas are significantly more responsive to the change than their counterparts in areas served by few for-profit providers. Differences in financial constraints and other observable factors correlated with for-profit hospital penetration do not explain the heterogeneous response. The findings suggest that not-for-profit hospitals mimic the behavior of private for-profit providers when they actively compete with them.