Proprietary Hospitals in the United States

Abstract

It has been traditionally argued that short-term private hospitals in the United States are predominantly non-profit voluntary institutions because they owe their origins to the charitable hospital of the nineteenth century, because they enjoy tax and other advantages over profit-making hospitals, and because Americans abhor the idea of profiting at the expense of the sick.

Though all three arguments contribute to an explanation, they are incomplete. The charitable tradition and the abhorrence of profit-making explain why non-profit hospitals have been granted tax exemption and other legal advantages. But what incentive is there to accept these advantages if the condition attached to them is that profit, including the profit flowing from the advantages, must be forgone? It is argued that the profits of a physician-owner come partly in the form of service provided by the hospital, and that the proportion of profit taken in this form grows as the size of the hospital and its medical staff grow. Thus, the non-profit hospital is preferred to the profit-making hospital because, paradoxically, it is the more profitable form.