For-Profit Status & Industry Evolution in Health Care Markets: Evidence from the Dialysis Industry

Authors:
Nathan E. Wilson
Working Paper:
314

Over the last 25 years, for-profit facilities have supplanted non-profits as the modal providers of hemodialysis treatment to American sufferers of end-stage renal disease. To understand what may underpin this dramatic change in industry structure, this paper uses a dynamic equilibrium model to develop intuition about how variation in different economic primitives might affect the evolution of industry structure. Subsequently, the paper exploits a comprehensive 20+ year panel dataset to examine entry, exit, and output patterns in relation to changes in demand and local market structure. Examining the empirical results in light of the model's comparative statics suggests that for-profit firms enjoy a significant advantage in static competition, perhaps as a result of lower marginal costs. By comparison, I find negligible evidence that for-profit facilities have lower entry costs. Interestingly, the data also suggest that competition among dialysis clinics may be differentiated.