Economic incentives in the hospice care setting: A comparison of for-profit and nonprofit providers

Abstract

We examine the association of for-profit (FP) and nonprofit (NP) economic incentives in hospice care providers with financial and nonfinancial metrics of management performance. Controlling for quality of patient care and differences in cost-efficiency, we find that FP providers (1) selectively admit patients with longer life-prognoses and billable days and hence lower average costs per day, (2) employ a lower average cost/skill mix of workers, and (3) have higher CEO compensation and profit. The NP providers admit more patients with the less profitable life-prognoses attributes, have lower CEO compensation, and reinvest their net earnings under the non-distribution constraint. While the profit incentive may be needed to attract providers into this rapidly growing and underserved market, the NP providers return a lower cost per patient served from the taxpayer's perspective.