The Effects of Ownership and Competition on Psychiatric Hospital’s Behavior: Implications for Cream Skimming and Heterogeneity of Causal Parameters

Abstract

Hospitals’ ownership status and the degree of market competition are two critical factors that shape their behavior. The distinctive characteristics of the inpatient psychiatric care market may provide an ideal environment for studying the role of ownership type of hospitals (for-profit versus not-for-profit) and potential impact of competition. Using inpatient psychiatric admissions in California, we examine whether for-profit hospitals engage in cream skimming, i.e., choosing patients for some characteristic(s) other than their need for care. Next, we examine whether an increase in competition motivates hospitals to operate more efficiently. Lastly, we examine how the form of instrumental variable and the specific analysis approach can identify different causal treatment effect parameters by estimating the causal effects of hospital ownership status on total inpatient costs.