Expansion in markets with decreasing demand-for-profits in the German hospital industry

Over the last 20 years, acute-care hospitals in most OECD countries have built up costly overcapacities. From the perspective of economic policy, it is desirable to know how hospitals of different ownership forms respond to changes in demand and are probably best suited to deal with existing overcapacities. This article examines ownership-specific differences in the responsiveness to changes in demand for hospital services in Germany between 1996 and 2006. With respect to the speed of adaptation to increasing demand, the study finds for-profit ownership to be superior to public and nonprofit ownership. However, contrary to other ownership types, for-profits also tend to expand in markets with decreasing demand - mainly through conversions of publicly owned hospitals. Thus, in short term, the privatization of the hospital sector may slow down the reduction of excess capacities and be therefore socially wasteful.