Effect of the Patient Protection and Affordable Care Act on for-profit hospitals in the USA

Abstract

Purpose

This study aims to examine the effect of the Patient Protection and Affordable Care Act (PPACA) on for-profit hospitals in the USA.

Design/methodology/approach

The study uses the event study methodology to examine the stock market’s reaction to the passage of the PPACA.

Findings

The results of the analysis do not show a negative effect; on the contrary, the stock prices of for-profit hospitals increased, on average, by 6%. The cumulative abnormal returns were 5.64% with a generalized z-value of 3.851 with a significance level of 0.001 (two-tailed test). This translates into an average gain of $230,537,096 for the four days (dates) that a positive step was taken in making the Affordable Care Act (ACA) a law of the country.

Practical implications

Because the study suggests that for-profit hospitals will be profitable under the PPACA, one could expect to see growth or, at the minimum, expansion in for-profit hospitals under the Act. Furthermore, and consistent with the principles of marketing, one would expect all the for-profit hospitals, at this nascent stage of the ACA, to pull resources together to promote the benefits of having the ACA.

Originality/value

To the best of the author’s knowledge, this is the first study to examine the effect of the PPACA on the operations of for-profit hospitals.

Citation

Koku, P.S. (2020), "Effect of the Patient Protection and Affordable Care Act on for-profit hospitals in the USA", International Journal of Pharmaceutical and Healthcare Marketing, Vol. 14 No. 2, pp. 201-215. https://doi.org/10.1108/IJPHM-12-2018-0060