Care at for-profit hospitals

Peter Devereaux and associates1 estimate the cost of care provided in private hospitals. Unfortunately, they ignore 3 important points.

The first is corporate income taxes. The authors estimate that for-profit hospital care (if half of Canadian hospitals were converted to private for-profit institutions) would cost an additional $3.6 billion. This additional money would be spent on improving care (greater capacity, shorter waiting times, newer technology) or other hospital expenses, or it would become “profit” before taxes. The average combined federal and provincial corporate income tax rate was estimated at 38.1% in Canada for 2002.2 If none of the additional $3.6 billion were spent on additional hospital expenses, then the for-profit hospitals would have to pay $1.37 billion (38.1% х $3.6 billion) in corporate income taxes. This would reduce the impact on taxpayers.

Second, the authors ignore the role of competition. The study with the most recent data (for 1986–1994) and the most patients found that lack of competition leads to higher prices, even for nonprofit hospitals.3 Devereaux and associates ignore the effect of competition in moderating prices.

Third, Devereaux and associates have ignored case mix. Instead, they extrapolate one pooled estimate of a congeries of hospital payment ratios to the entire Canadian hospital system.

I am sure that consideration of the above points would substantially alter the policy recommendations that were derived from the meta-analysis.

Vincent V. Richman Associate Professor of Accounting Sonoma State University Rohnert Park, Calif.