Health Care

Stefanos Zenios: Reexploring Differences among For-Profit and Nonprofit Dialysis Providers

Research looked to determine whether profit status is associated with differences in hospital days per patient, an outcome that may also be influenced by provider financial goals.

April 09, 2010

Several studies have examined differences in mortality rates among for-profit and nonprofit dialysis facilities. These studies have been widely criticized for having insufficiently considered risk adjustment and possible referral bias. A recent comprehensive analysis conducted by Brooks et al. (2006) utilized an instrumental variable approach and demonstrated no significant difference in mortality rates among for-profit and nonprofit dialysis facilities. Because mortality is a terminal event that happens infrequently (at most once for each patient), we are concerned that statistical tests lack sufficient power to detect differences in mortality among for-profits and nonprofits. This paper considers a more frequent event, days in the hospital, to test whether there are significant differences among for-profit and nonprofit dialysis.

Selecting a clinical outcome for comparing for-profit and nonprofit dialysis providers should be based on a theoretical justification of how the behavior of providers differs based on their profit status and leads to differences in that outcome. The most common justification is based on the assumption of different objectives: for-profits are profit maximizers while nonprofits adopt public interest goals (Horwitz 2007). Therefore, for-profits will be more likely than nonprofits to provide profitable services and less likely to provide unprofitable ones. Empirical evidence supporting that theoretical justification in the context of nonprofit and for-profit hospitals has been reported previously.

To apply this theoretical justification in the context of dialysis we need to identify a clinical outcome that is inadequately rewarded by the existing reimbursement system: an outcome in which the financial rewards to the provider from interventions that aim to improve it are less than the cost of these interventions. Days in the hospital could provide such a clinical outcome. Preventing infections and other complications in dialysis patients that lead to lengthy hospitalizations is within the realm of activities undertaken by dialysis providers. However, the financial rewards are modest in the form of avoiding missed treatments while the costs can be considerable. If the costs exceed the rewards, then we expect for-profit providers to have higher hospitalization days than nonprofit providers. If the costs are less than the rewards, we would expect the opposite. One would expect relatively high costs of hospitalization avoidance strategies, as these would generally require input from professionals (e.g., physicians, pharmacists, or registered nurses, functioning to monitor or screen for drug-drug interactions or problems with vascular access) whose services would be more expensive than those conducted for the routine provision of dialysis, which are principally performed by technicians.

We explored these issues using Medicare data to test for differences in hospital outcomes among patients treated in for-profit versus nonprofit facilities.

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