Conversion of HMOs and hospitals: what's at stake?

Abstract

Because for-profit conversions of nonprofit organizations are regulated under trust law at the state level, their health policy implications have generally not been part of the process. This paper provides a health policy framework for assessing conversions of hospitals and health maintenance organizations (HMOs). It begins with basic differences in ownership forms and identifies considerations on both sides of the conversion question. The analysis turns on the extent of the social benefits of nonprofits: the regulatory tool provided by tax exemptions, trustworthiness in the presence of informational asymmetries, and community benefit activities. The analysis and the evidence suggest that the nonprofit form continues to hold significant advantages in health care that bear consideration by policymakers faced with conversion proposals.