Shaky basis for report's sweeping recommendations.

Abstract

The Herzlinger-Krasker report bases its sweeping conclusions on a methodologically flawed study that fails to account for differences between system hospitals and independent hospitals, includes contract-managed facilities and a large health maintenance organization in the sample, and ignores the effects of differences in state Medicaid programs and the availability of public hospitals on the provision of uncompensated care. These methodological problems undoubtedly help explain why the authors' assertions and conclusions are at variance with most of the other literature on this topic. Perhaps the tax-exempt status of not-for-profit hospitals should be reexamined, as Herzlinger and Krasker suggest. The need for reexamination, however, lies in the extent to which hospitals meet expectations of social benefit in exchange for tax exemptions, not in the hope of creating a level playing field. Justification for tax exemptions could be based on an organization's research and educational activities and its provision of needed but unprofitable services, in addition to its service to poor patients.