Capital Structure,Ownership, and Capital Payment Policy: The Case of Hospitals

This study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a one-period stochastic, value-maximization model. Separate models are developed for for-profit and not-for-profit hospitals. Hospital debt-to-assets ratios are analyzed empirically using a cross-section of data from the American Hospital Association. Although the effect on capital structure of hospital reliance on cost-based reimbursement cannot be signed theoretically, in both for-profit and not-for-profit cases, a higher cost-based share leads to higher leverage. Factors associated with high bankruptcy risk (e.g., earnings volatility) cause hospitals to take on less debt.