Insurance company as dominant shareholder and financial performance in for-profit hospitals

Abstract

Ownership of hospitals matters with respect to financial performance, but the literature on this topic is scarce and largely focussed on for-profit versus non-for-profit hospitals. In contrast, this paper focusses on the for-profit hospital and, specifically, on the insurance companies as hospital dominant shareholders with respect to other types of shareholders. Arguments from the ownership and strategic management literatures are used from a theoretical point of view. Specifically, this paper analyses empirically the effects of insurance companies as controlling shareholders on the financial performance of unlisted, private, forprofit hospitals (179) in Spain from 2005 to 2012. The results show that the hospitals with insurance companies as controlling shareholders are less profitable and have a lower operating margin than do those controlled by banks, firms, or individuals/families. The lower performance might be explained by rent seeking by insurance companies as dominant shareholders because they could apply pressure to reduce the prices of the services provided by the hospitals to the insurers.