Improving Service Delivery: A Question of Incentives
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Box 6.6 (Continued)
the composition of cases seen (economies of scope), case mix, and severity mix or case complexity. This is a tall order, and many of the differences in results across studies can be accounted for by differences in assumptions and analytical approaches (Shen et al. 2005). With these caveats in mind, reviews of the evidence (mainly from the United States) suggest that for-profit hospitals generate more revenue and greater profits than nonprofit hospitals, although differences are small, and that there is little difference in cost and efficiency across ownership and profit status (Sloan 2000; Shen et al. 2005). On balance, for-profit hospitals seem to have worse technical quality and higher mortality than nonprofits (Devereaux et al. 2002; Picone, Chou, and Sloan 2002), but the evidence is far from consistent across studies (Sloan 2000). While many studies have focused on differences between for-profit and nonprofit hospitals, there is less evidence on the differences related specifically to ownership. Some studies suggest that public hospitals perform worse than private ones, but this may simply reflect their status as “providers of last resort” whereby they are forced to handle more complex cases. Some studies have focused on specific hospital behaviors. They suggest that private providers respond to incentives and tend to “game” the system if possible. This can be seen in many areas—for example, creative cost accounting and charging to increase profits (Chan et al. 1997; Maher and Marais 1998), systematic upcoding in response to DRG payment (Silverman and Skinner 2001), price responses to monopoly power (Duggan 2000), and activity shifting in response to outdated price schedules (Imai, Jacobzone, and Lenain 2000). Interestingly, the U.S. literature suggests that nonprofits and for-profit hospitals respond in very similar ways to changes in incentives, and game the system equally (Chan et al. 1997; Duggan 2000; Silverman and Skinner 2001). In other words, although institutional arrangements should ensure that nonprofits have “softer” incentives, the institutional constraints on their behavior seem to have little impact, at least in highly competitive environments.
Along these lines, China can achieve the changes in autonomy outlined above within both the public and private sectors. If hospitals and health centers are retained as government-owned public services units, the administrative and regulatory regime that governs what public services unit managers can and cannot do will have to be reformed. Alternatively, providers can be transformed into private entities—in principle either forprofit or nonprofit. Privatized providers would fall under private law and