ABSTRACT
This chapter reviews theories and empirical evidence on the performance of private for-profit hospitals reported in the US literature. It also explores the potential effects of introducing private for-profit hospitals on Chinas medical-care market. Kenneth Arrow identified three unique features of the medical-care industry: asymmetric information, moral hazard, and externalities. The chapter includes three factors that are most relevant to China: efficiency quality of care, and medical expenses. It presents the economic theories about hospital ownership. The chapter reviews the US empirical evidence on the performances of hospitals across ownership types. It explores the potential effects of private for-profit hospitals on Chinas medical care services. The chapter outlines special features of not-for-profit hospitals, both private and government owned, have often been considered superior to for-profit hospitals by policy makers and social scientists. Without a healthy market environment, market competition from private for-profit hospitals could lead to rapid increase in medical-care expenses without significant improvement in the quality of care.
