Competition between for-Profit and Nonprofit Health Care Providers: Can it Help Achieve Social Goals?

Abstract

This article outlines a theory of competition between for-profit and nonprofit health care providers. The theory demonstrates conditions under which nonprofits can help achieve social goals and explores how the nondistribution constraint imposed on nonprofits regulates the competitive process. It is shown that competition from nonprofits can create a positive spillover effect on the performance of the for-profit sector. The theoretical arguments, which focus on patients who are poorly informed about quality, are then extended to the hospital sector where there are a variety of social goods including charity care, education, and community health programs. These ideas serve as the basis for a literature review on hospital ownership, competition, and the provision of social goods and a critique of empirical research on the relative performance of for-profit and nonprofit providers. The article concludes with implications for policy toward nonprofit organizations in service industries and a discussion of how empirical research can inform such policy.