Chapter 21 NOT-FOR-PROFIT OWNERSHIP AND HOSPITAL BEHAVIOR* FRANK A. SLOAN Duke University, Durham, NC, USA Contents Abstract 1142 Keywords 1143 1. Introduction 1144 2. Legal distinctions among ownership forms 1146 3. Why the not-for-profit form is dominant 1148 3.1. Transactions costs and assignment of ownership rights 1148 3.2. Fiduciary relationships and complex output 1148 3.3. Public goods 1150 3.4. Implicit subsidies 1151 3.5. Explicit subsidies 1151 3.6. Inertia 1151 3.7. Cartel theory 1152 3.8. Profitability and for-profit entry 1152 3.9. Which rationale fits the best? 1153 4. Models of not-for-profit hospital behavior 1153 4.1. Objectives 1153 4.2. Comparative statics analysis 1154 4.3. Hospital as a physicians' cooperative 1154 5. Empirical evidence on the effect of ownership on hospital performance 1155 5.1. Cost 1155 5.2. Profitability 1158 5.3. Hospital pricing patterns: Cost-shifting in the face of demand shifts 1158 5.4. Uncompensated care 1160 5.5. Diffusion of technology 1161 5.6. Quality of care 1161 *Several persons provided useful comments on previous drafts of this chapter: Joseph Newhouse, Edward Norton, Charles Phelps, Carol Propper, and William Vogt. This review benefited from seminars at the Na- tional Bureau of Economic Research and a work group organized by Burton Weisbrod. Remaining errors and omissions are my responsibility. Handbook of Health Economics, Volume 1, Edited by A.J. Culyer and J.P Newhouse © 2000 Elsevier Science B. V All rights reserved