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Member Research & Reports

Member Research & Reports

Saint Louis Finds Differences in Nonprofits, Investor-Owned Hospitals’ Debt Use

Four Saint Louis University researchers have found that nonprofit hospitals use debt differently to investor-owned ones. This finding, based on a large, multi-year dataset from the Centers for Medicare & Medicaid Services’ Healthcare Cost Report Information System, is in contrast to previous findings from a relatively small sample.


“The choice of how to finance activities has a tremendous impact on the types of projects [hospitals] pursued as well as the respective stakeholders,” says Dr. Jason Turner, corresponding author of “A Comparison of Capital Structure: The Use of Debt in Investor Owned and Not-for-Profit Hospitals.”

“Unlike other sectors of the economy […], nonprofit healthcare firms compete directly with investor-owned firms in the same market niche for patients, providers, and revenues in an attempt to preserve margins and profitability.”

Hospitals must weigh the costs and benefits of using debt; factors – such as profitability, risk, growth, and size – influence their capital structure decisions differently, the paper says.

Investor-owned hospitals rely more heavily on debt as a source of financing than nonprofits because they can take advantage of tax shields that reduce their tax liability and increase their returns to investors, Dr. Turner and his co-authors observed. Nevertheless, during periods of growth and increasing assets, nonprofits used more debt than investor-owned ones.

SLU researchers also found the capital structure of nonprofit hospitals is more sensitive to profitability and not as sensitive to risk.

Turner, assistant professor of Health Management and Policy and Director of the Master of Health Administration program at SLU, worked with Dr. Kevin Broom, assistant professor in the same department, Dr. Michael Elliot, assistant professor of biostatistics, and health administration master’s candidate Ms. Jen-Fu Lee. The findings will appear in the January/February issue of the Journal of Health Care Finance.