Objective: This study explores the relationships among donations to not-for-profit hospitals, the returns provided by these hospitals, and fund-raising efforts. It tests a model of hospital behavior and addresses an earlier debate regarding the supply price of donations.
Data sources: The main data source is the California Office of Statewide Health Planning data tapes of hospital financial disclosure reports for fiscal years 1980/1981 through 1986/1987. Complete data were available for 160 hospitals.
Study design: Three structural equations (donations, returns, and fund-raising) are estimated as a system using a fixed-effects, pooled cross-section, time-series least squares regression.
Principal findings: Estimation results reveal the expected positive relation between donations and returns. The reverse relation between returns and donations is insignificant. The estimated effect of fund-raising on donations is insignificantly different from zero, and the effect of donations on fund-raising is negative. Fund-raising and returns are negatively associated with one another.
Conclusion: The empirical results presented here suggest a positive donations-returns relations and are consistent with a positive supply price for donations. Hospitals appear to view a trade-off between providing returns and soliciting donations, but donors do not respond equally to these two activities. Attempts to increase free cash flow through expansion of community returns or fund-raising activity, at least in the short run, are not likely to be highly successful financing strategies for many hospitals.