PurposeThe purpose of this study is to investigate how two types of drivers, namely, executive compensation and market competition, can affect hospital quality in the USA. Recently, patients, insurers and regulators have increasingly focused on hospital quality. Understanding the interplay of incentives in this industry is important because in 2019, hospital treatment contributed $1.161bn to health-care costs in the USA. This study answers the call for more studies in the so-called "mixed" industry, where ownership differences can affect organizational objectives and operating constraints. Design/methodology/approachThis study explores the roles of hospital executive compensation and industry competition as determinants of health-care quality. Specifically, the study probes the heterogeneity in the factors that influence quality across hospital types in the USA. FindingsUsing California hospital data from 2006 through 2020, the findings show that the effects of compensation and competition on hospital quality differ by ownership type. Executive compensation is positively associated with quality in for-profit hospitals but is not associated with that of nonprofit hospitals, suggesting for-profit hospitals are more likely to use higher levels of compensation to attract managers with higher ability, whereas the utility function for nonprofit managers may be multidimensional. Within the nonprofit hospital group, competition is more positively associated with quality for religious nonprofits relative to secular nonprofits, suggesting that competition provides more monitoring for religious hospitals. Originality/valueTaken together, the findings provide evidence that the drivers of quality vary across hospitals in ways consistent with differences in constraints and objectives across ownership types. The findings are important for regulators seeking to incentivize higher quality. For example, Medicare in the USA has incorporated quality measures into its new hospital reimbursement scheme (value-based purchasing) to incentivize quality. This study proposes that regulators should consider differences across ownership types when evaluating the best ways to incentivize hospital quality.

Because of changes in tax regulations and increased political pressure, firms are reconsidering their practices of shifting manufacturing operations offshore to lower wage countries. Although outsourcing has been well researched, few studies examine managerial practices that influence offshore operations. We investigate the effects of choices regarding labor, suppliers, and outsourcing that influence firm longevity in the maquiladora industry in Mexico. We argue that firms are exposed to labor frictions, supply-chain constraints, and compliance and regulatory risks that if left unresolved can lead to plant closure attributable to labor or regulatory frictions and rising costs. We consider specific actions pursued by managers at maquiladora plants to mitigate the underlying constraints and then analyze factors that affect the likelihood of continuing operations, that is, the longevity of the plants. We find a positive relation between the likelihood of longevity in operations and the following plant characteristics: hourly wages, workforce stability, skill, and the decision to outsource regulatory compliance functions. We document a negative relation between longevity and total labor cost as a percent of total costs as well as using suppliers based in Mexico. We also find that high-tech plants have higher stability, pay higher wages, and experience greater longevity than low-tech plants. Overall, we identify key managerial choices that are related to longevity in offshoring production.

ABSTRACT This paper presents an overview of the literature in management accounting and control systems (MACS) in the hospital industry. A unique feature of the hospital industry in several countries is not only the coexistence of different ownership forms (such as nonprofit, for-profit, and government), but also diversity within a specific form (such as religious, secular, and university nonprofit hospitals). Organizational objectives and the operating constraints faced by various types of hospitals differ in this “mixed” industry. As a result, one unifying or grand theory is unlikely to provide sufficient insights to understand hospital behavior, especially with respect to MACS design and outcomes. Additionally, the industry has witnessed a variety of regulatory changes, which are primarily aimed at reducing healthcare costs and increasing access. These regulatory changes influence every aspect of MACS. Finally, hospitals face institutional constraints, which have implications for MACS design and use. We review the MACS literature in the hospital industry and identify opportunities for future accounting research.

The practice of shifting manufacturing activities to lower wage countries has thrived lately as firms attempt to reduce labor and other costs. However, success has been elusive for many of these firms. We investigate the determinants of offshoring success, with emphasis on the role of transaction costs in firms’ decisions to continue (or discontinue) manufacturing abroad. We hypothesize that labor constraints, supply chain frictions, and other transaction costs could impact production and potentially offset labor cost savings. We analyze labor costs and constraints and relevant transaction costs. We find that although successful plants pay a wage premium and more benefits to workers, their overall labor costs are relatively lower. These plants attract a more skilled and stable labor force, outsource non-manufacturing functions more often, and use fewer Mexican suppliers. Overall, our findings suggest that environmental frictions and transaction costs matter when shifting production offshore.

Recent accounting research provides evidence that similar profit-based compensation incentives are used in for-profit and nonprofit hospitals. Because charity care reduces profits, such incentives should lead for-profit hospital managers to reduce charity care levels. Nonprofit hospital managers, however, may respond differently to the same incentives because they face a different set of institutional pressures and constraints. We compare the association between pay-for-performance incentives and charity care in for-profit and nonprofit hospitals. We find a negative and significant association between charity care and our proxy for profit-based incentives in for-profit hospitals and no significant association in nonprofit hospitals. The evidence in the nonprofit sample that profit-based incentives have no significant effect on charity care levels suggests that institutional differences inherent in the nonprofit setting mitigate the negative effect of profit-based incentives on charity care.

ABSTRACT We extend the literature on earnings management through real operating decisions by providing insight into the types of expenditures (core versus noncore and operating versus non-operating activities) affected by earnings management. We partition a sample of California nonprofit hospitals based on their earnings management incentives. We find that expenditures on non-operating and non-revenue-generating activities appear to decrease in hospitals with incentives to engage in such behavior, while core patient care activities remain unchanged. We also find evidence of earnings management in non-core operational expenses. Second, we analyze real earnings management related to pay-for-performance incentives and find that hospitals with stronger performance incentives exhibit a significant incremental decrease in expenditures. Finally, we examine two different kinds of behavior to discriminate between earnings management and good operational decisions and provide weak evidence to support opportunism rather than good management. Together, these results provide evidence of the use of real operating decisions to manage earnings.

ABSTRACTDrawing on transaction cost economics and institutional theory we argue that the effects of institutional constraints on the transaction costs of outsourcing vary systematically with the type of service outsourced and the ownership structure of the outsourcing firm. Using data from hospitals, we demonstrate that these effects lead to a higher extent of outsourcing of nonclinical compared to clinical services, and larger outsourcing response of nonclinical services to cost pressures from managed care. Further, the effects of ownership structure and associated governance mechanisms on institutional constraints are reflected in the empirical results as cross‐sectional variations in the extent to which outsourcing is invoked as a response to cost pressures by hospitals of different ownership.

This research examines physician response to implementation of an activity-based costing (ABC) system developed and designed with physician input. We analyze changes in resource utilization for treatment of cataract patients and find changes in practice patterns, where physicians redeployed resources toward more severely ill patients and decreased average length of stay. We also find preliminary evidence of improvement in financial performance. We contribute to research investigating the influence of user participation on accounting system success, ABC system success, and hospital accounting information systems.

This study analyzes financial performance in firms that employ maquiladora production, a manufacturing arrangement utilizing Mexican labor. We argue that although accountants can readily identify and value the obvious benefits of labor savings, they have more difficulty identifying and valuing incremental costs from any frictions encountered. The result is that this offshore labor strategy may not be as cost-effective as it would initially appear. We cannot explicitly measure the costs associated with these frictions; we therefore compare performance of a sample of firms that implemented maquiladora production (treatment firms) with performance of similar firms (control firms), examining median return on assets (ROAs) during periods before and after implementation. Results for the median difference tests suggest that although treatment firms benefit from lower committed costs and lower labor costs, there is no corresponding increase in ROA. Results from the regression models are similar and indicate no differences in ROA after implementation, and no differences in committed costs and labor costs. To identify those firms that could have more difficulty estimating costs and benefits, we partition the maquiladora firms on variance of profits, assuming that high-variance firms may be more cautious in their decision making. We find that compared with the low-variance sample firms, high-variance firms experience increases in ROA after implementing maquiladora production. The production process is another firm characteristic that could influence maquiladora success. As expected, when we partition the maquiladora firms on production technology, we find that maquiladora implementation leads to higher ROAs for low-production technology firms.

This chapter summarizes empirical archival accounting research in management accounting that is based on economic theory and uses health care settings. Three perspectives are investigated: (1) production cost economics, including cost structure, cost behavior, cost drivers, the design of cost allocation systems, and the appropriate level of cost aggregation; (2) agency theory, including incentives to bias information or shift costs, the relation between benchmark disclosure and cost containment, and issues pertaining to compensation contracts and performance evaluation; and (3) industrial economics, including the effects of competition and mergers on accounting systems and costs, and capital budgeting responses to regulation.

This paper analyzes the association between ownership, top management incentives, and expenditures on accounting information. We argue that organizations with privately appointed boards of directors such as for-profit and non-governmental nonprofit organizations use incentive pay practices which encourage managers to use accounting information to improve performance. In contrast, government organizations are publicly governed and are constrained in their compensation practices because hospital CEOs are administrators of government provided services. However, these hospitals must prove their efficiency to continue to receive adequate budgetary funding. Therefore government hospitals are more likely to use accounting information to gain legitimacy with stakeholders and regulators. Accordingly, we predict a positive relationship between expenditures on accounting information and contracting intensity in privately governed organizations, whereas we expect no such association for publicly governed organizations. We analyze data from California hospitals to determine differences in these roles across ownership types. We find a positive association between contracting intensity and expenditures on accounting information in privately governed hospitals, but no relation in publicly governed hospitals. Finally, we find differences in the use of accounting information within the privately governed hospitals, based on ownership. While for-profit hospitals expend resources on accounting information that helps improve their revenue positions, nonprofit hospitals expend resources on accounting information that facilitates decision-making related to operating efficiency and cost containment.

This article describes U. S. accounting research inspired by the U. S. Medicare system's adoption of a DRG based prospective reimbursement system (PPS) in 1983. This paper describes research questions and insights gained from studying the PPS implementation. Each topic is followed by a brief synopsis of its potential relevance for the German DRG-system, as well as some suggestions for further research.

This paper studies the governance of a sample of California hospitals. We find a number of empirical relations about hospital governance: The composition of the board of directors varies systematically across ownership types; poor performance and high administrative costs increase board turnover, with this sensitivity varying by organizational type; and poor performance, high administrative costs, and high uncompensated care lead to higher CEO turnover, with these effects again varying across different organizational types. Overall, these results are consistent with the view that boards of directors of hospitals of different organizational forms are substantially different, and that these boards make decisions to maximize different objective functions.

This study analyzes the response of nonprofit managers to a change in accounting regulation. A 1990 change in hospital accounting rules disclosed new information about bad debt and charity care expenses. This change provided managers with incentives to reclassify some bad-debt expense to charity care. Using univariate and multivariate analyses, we find that nonprofit managers respond to their current cash position when making classification decisions to disclose bad-debt expense and charity care amounts. While we expected that charity care levels would influence these managers differentially, cash levels appear to be more important in their disclosure decision making.

This paper analyzes the effects of hospital ownership on three specific strategies to improve financial performance. These strategies include (1) spending on advertising to increase revenues through increased market share and premium prices; (2) spending on accounting systems to cut costs, increase accounts receivable collections, or increase legitimacy with stakeholders and donors; and (3) improving efficiency through professional administration. We analyze California hospital expenditures on advertising, accounting, and administration for the period 1998 to 2000 to determine differences in these strategies across ownership type. We also examine the relationships among these expenditures and revenues and excess income margins. We find differences in strategies by ownership, i.e., for-profit hospitals emphasize advertising whereas government hospitals emphasize accounting. We also find that expenditures on advertising, accounting, and administration are positively related to margins for some hospitals.

This study explores incentives and performance in organizations governed by publicly elected boards of directors and subsidized by taxes. Such organizations are likely to underpay Chief Executive Officers (CEOs), resulting in selection and incentive problems and hence poor operating performance. We compare municipal district hospitals to private nonprofit hospitals. CEO compensation in district hospitals is significantly lower than in the nonprofits. Operating margins in district hospitals are lower and deteriorate more rapidly over time. We rule out a number of other factors that could explain differences in performance. We conclude that the weak governance structure hampers district hospitals.