Does Managerial 'Outsourcing' Reduce Expense Preference Behavior? A Comparison of Adopters and Non-Adopters of Contract-Management in Us Hospitals

32 Pages Posted: 1 Nov 2002 Last revised: 9 Jan 2022

See all articles by Kathleen Carey

Kathleen Carey

Boston University - Department of Health Services; U.S. Department of Veterans Affairs

Avi Dor

Case Western Reserve University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2002

Abstract

This paper explores potential realization of gains by hospitals that are managed on a day-to-day basis by external organizations under formal contracts. It draws from the incentives literature, which postulates that managers of firms where ownership is separated from control will employ an input mix that deviates from cost minimization. While this status applies to hospitals generally, we hypothesize that specialized managerial expertise, coupled with the threat of non-renewal, will improve efficiency in hospitals that opt for contract. Secondary data obtained from the AHA Annual Surveys (1991-1998) are applied to examine the distribution of expense preference' parameters for all contract management adopters both pre- and post-adoption. These are contrasted with two control groups of hospitals drawn from the same years using propensity score methods. Results reveal allocative inefficiency among both adoption and control groups but a significantly lower change in the expense preference parameter pre- and post-adoption associated with a staffing. This suggests that changes in incentive contracts are one important strategy hospitals are using to cope with competitive pressures.

Suggested Citation

Carey, Kathleen and Dor, Avi, Does Managerial 'Outsourcing' Reduce Expense Preference Behavior? A Comparison of Adopters and Non-Adopters of Contract-Management in Us Hospitals (September 2002). NBER Working Paper No. w9157, Available at SSRN: https://ssrn.com/abstract=330991

Kathleen Carey

Boston University - Department of Health Services ( email )

715 Albany Street
Boston, MA 02218
United States

U.S. Department of Veterans Affairs

810 Vermont Avenue NW
Washington, DC 20420
United States

Avi Dor (Contact Author)

Case Western Reserve University - Department of Economics ( email )

Cleveland, OH 44106
United States
216-368-4110 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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