Very Preliminary Ownership, Efficiency and The Market Value of Hospitals

Do nonprofit hospitals sell at a discount compared to for-profit hospitals? This question stems from public concerns about the underpricing of nonprofits, and raises important questions about the nature of nonprofit firms, their objectives, and their managerial efficiency. We address this question using a database of hospital sales prices and find that, contrary to the prevailing wisdom, nonprofits are not inefficient: they pay no more for hospitals than for-profits pay, and sell to for-profits for no less than for-profits sell for. Nonprofits do, however, behave differently than for-profits: they sell to other nonprofits at a discount. Our findings are thus consistent with a theory of nonprofits in which nonprofits are efficient, consumer-organized firms. Acknowledgements: This paper has benefited from discussions with Brownwyn Hall, Mark Harrison, Ben Hermalin and David Mowery. The authors are grateful to Mark Harrison of Shattuck Hammond for providing the data. Not-For-Profit Hospitals Gertler-Kuan Page of 16 2