Reconsidering Government Intervention in Hospital Bankruptcies: The Case of the Netherlands

In this paper, we assess the optimality of bankruptcies among hospitals in the Netherlands. Following the standard principles of bankruptcy theory, there is no strong case for governments to support hospitals that are in financial distress. Such intervention reduces hospitals’ incentives to avoid bankruptcies and also potentially allows inefficient hospitals to continue to operate. Within the context of the Netherlands, however, the question emerges whether this principle also holds for general hospitals that are faced with the non-profit constraint. In the absence of government intervention, there is a higher risk of too early liquidation. We therefore argue that more market dynamics is needed by allowing private equity in hospitals’ capital structure, thus releasing entry barriers.