Do hospital chief executive officers extract rents from Certificate of Need laws?

J Health Care Finance. Summer 2011;37(4):1-14.

Abstract

Prior research suggests that Certificate of Need (CON) laws reduce competition in the hospital services industry. As a result, this study empirically investigates if not-for-profit hospital chief executive officers (CEOs) are able to extract rents from CON laws in the form of higher compensation. A sample of 256 not-for-profit hospital CEOs in states with and without CON laws and data for 2007 are used in the empirical analysis. The study considers the endogenous nature of a CON law and allows such a law to indirectly affect CEO compensation through its impact on the number of hospitals and beds. The multiple regression results indicate that special and public interests both motivate the decision of a state to maintain a CON law. CON laws are shown to reduce the number of beds at the typical hospital by 12 percent, on average, and the number of hospitals per 100,000 persons by 48 percent. These reductions ultimately lead urban hospital CEOs in states with CON laws to extract economic rents of $91,000 annually.

MeSH terms

  • Certificate of Need / economics*
  • Certificate of Need / legislation & jurisprudence
  • Chief Executive Officers, Hospital / economics*
  • Chief Executive Officers, Hospital / legislation & jurisprudence
  • Economic Competition / trends
  • Hospital Bed Capacity / economics
  • Hospital Bed Capacity / statistics & numerical data
  • Hospitals, Voluntary / economics*
  • Hospitals, Voluntary / legislation & jurisprudence
  • Humans
  • Models, Econometric
  • Regression Analysis
  • Uncompensated Care / economics
  • Uncompensated Care / trends
  • United States