Economic Incentives in the Hospice Care Setting: A Comparison of For-profit and Nonprofit Providers

Abstract

The purpose of this paper is to examine the association of differences in economic incentives between for-profit (FP) and nonprofit (NP) hospice care providers with management performance using financial and nonfinancial metrics. This research is based on the expectations of Agency theory and applies proxies of the quality of patient care while controlling for differences in cost-efficiency. Our findings indicate that FP hospice 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.