Determinant | Sign | Hypothesis | Reference |
---|---|---|---|
Profitability | Positive | Hospitals earn additional profits when patients’ marginal valuation of quality increases with price | |
Debt level | Positive | Borrowing capacity stemming from the benefits of tax-exempt conduit bonds encourages nonprofit hospitals to raise more debt capital | Valvona and Sloan [23] |
Negative | Risk of bankruptcy (or financial distress) and the associated costs cause hospitals to postpone investment and refrain from borrowing. | Wedig et. al. [22] | |
Asset liquidity | Positive | Hospitals with more liquid assets are more likely to obtain external financing due to higher probability of repayment. | Shleifer and Vishny [24] |
Labor costs | Positive | The greater demand for quality of care encourages hospitals to employ a high quality workforce which incurs significant costs of labor. | |
Negative | Excessive labor costs in the form of compensation and benefits reduce profits. | ||
Charity care costs | Negative | The optimal level of uncompensated care provision depends on balancing the hospital’s marginal benefits and costs, and an oversupply of charity care could negatively impact profits. | Banks et. al. [27] |
Operating efficiency | Positive | The elimination of slack resources, wasteful capacity, dysfunctional operation and organizational chaos may lead to high quality of care. | Blegen et. al. [32], Picone et. al. [33], Valdmanis et. al. [34] |