The United States hospital industry is an unusual market in that

Question

The United States hospital industry is an unusual market in that nonprofit and for-profit producers exist simultaneously. Theoretical literature offers conflicting views on whether nonprofit hospitals are less financially efficient. Theory suggests that nonprofit hospitals are so much more interested in offering high-quality service than in making money that they frequently input more resources to provide the same output of service as for-profit hospitals. This priority might also often lead them to be less vigilant in streamlining their services—eliminating duplication between departments, for instance. Conversely, while profit motive is thought to encourage for-profit hospitals to attain efficient production, most theorists admit that obstacles to that efficiency remain. For-profit hospital managers, for example, generally work independently of hospital owners and thus may not always make maximum financial efficiency their highest priority. The literature also suggests that widespread adoption of third-party payment systems may eventually eliminate any such potential differences between the two kinds of hospitals.

The same literature offers similarly conflicting views of the efficiency of nonprofit hospitals from a social welfare perspective. Newhouse (1970) contends that nonprofit hospital managers unnecessarily expand the quality and quantity of hospital care beyond the actual needs of the community, while Weisbrod (1975) argues that nonprofit firms — hospitals included — contribute efficiently to community welfare by providing public services that might be inadequately provided by government alone.

1. Which of the following best describes the overall content of the second paragraph of the passage?

(A) It describes views concerning a particular aspect of one of the types of hospitals discussed earlier.
(B) It describes an additional benefit of one of the types of hospitals discussed earlier.
(C) It offers a potential solution to a problem inherent in the structure of the United States hospital industry.
(D) It provides an additional contrast between the two types of hospitals discussed earlier.
(E) It describes one of the consequences of the character of the United States hospital market.

2. According to the passage, Newhouse's view of the social welfare efficiency of nonprofit hospitals differs from Weisbrod's view in that Newhouse

(A) contends that government already provides most of the services that communities need
(B) argues that for-profit hospitals are better at meeting actual community needs than are nonprofit hospitals
(C) argues that nonprofit hospitals are likely to spend more to provide services that the community requires than for-profit hospitals are likely to spend
(D) argues that nonprofit hospitals ought to expand the services they provide to meet the community's demands
(E) believes that the level of care provided by nonprofit hospitals is inappropriate, given the community's requirements

3. The passage suggests which of the following about the managers mentioned in the highlighted text?

(A) They have generally been motivated to streamline hospital services as a result of direct intervention by hospital owners.
(B) They are more likely than managers of nonprofit hospitals to use unnecessary amounts of resources to provide services.
(C) Their most important self-acknowledged goal is to achieve maximum financial efficiency so that hospitals show a profit.
(D) Their decisions regarding services provided by their hospitals may not reflect hospital owners' priorities.
(E) They do not place a high priority on maximizing profits, despite their desire to achieve efficiency.

4. The passage is primarily concerned with

(A) discussing the advantages of increased efficiency in a particular type of hospital
(B) assessing obstacles to efficiency in a particular type of hospital
(C) describing conflicting assessments in the theoretical literature concerning particular types of hospitals
(D) challenging evidence used to support an argument advanced in recent theoretical literature concerning a particular type of hospital
(E) emphasizing the advantages of one particular type of hospital over another type

5. The author mentions duplication between departments primarily in order to

(A) illustrate an area in which nonprofit hospitals fail to provide adequate services
(B) describe the outcome of nonprofit hospitals' emphasis on maintaining managerial freedom
(C) recommend a particular change that would allow nonprofit hospitals to streamline their services
(D) suggest a way in which nonprofit hospitals may fail to achieve maximum financial efficiency
(E) explain why nonprofit hospitals may be able to provide more services than for-profit hospitals

Show Spoiler

Source : JOURNAL ARTICLE
Hospital Ownership and Technical Inefficiency
James F. Burgess, Jr. and Paul W. Wilson
Management Science
Vol. 42, No. 1 (Jan., 1996), pp. 110-123
Published by: INFORMS
https://www.jstor.org/stable/2633019
Page Count: 14

Attachment:

[email protected] [584.25 KiB]
Downloaded 202 times

Show Answer Question #1

Official Answer

A

Show Answer Question #2

Official Answer

E

Show Answer Question #3

Official Answer

D

Show Answer Question #4

Official Answer

C

Show Answer Question #5

Official Answer

D

Every tricky question should trigger a follow up quiz. Build that habit with GMAT Club Forum Quiz →.

GMATNinja · Accepted Answer

Question 2, Explained Question #2 is quite targeted: Let's focus on what this question is asking: What is Newhouse's view of social welfare efficiency of nonprofit hospitals in contrast to Weisbrod's view? Newhouse and Weisbrod are not mentioned at all in the first paragraph. The author never links them to the first paragraph. Consequently, everything we need to answer this question is in the second paragraph. We know that Newhouse thinks "nonprofit hospital managers unnecessarily expand the quality and quantity of hospital care beyond the actual needs of the community." It's up to us to look for something matching this description, and to eliminate choices that stray outside these lines. Newhouse absolutely does not say this within the passage. The author does tell us that Weisbrod believes nonprofit firms provide public services that might be inadequately provided by government alone. However, this is a statement from Weisbrod, not from Newhouse. Eliminate (A). Newhouse says nothing about for-profit hospitals. While Newhouse contends that nonprofit hospital managers go beyond the actual needs of the community, we have no evidence of anything Newhouse says or thinks about for-profit hospital managers. We can't make that leap of logic because we're asked what's true according to the passage . Eliminate (B). Again, Newhouse says nothing about for-profit hospitals in this passage. This answer choice takes a nice-sounding phrase ("nonprofit hospitals are likely to spend more to provide services that the community requires"). Then this choice places that phrase into an incorrect statement, comparing spending of nonprofit vs. for-profit hospitals for the same level of services. Eliminate (C). Newhouse says that nonprofit hospital managers' expansion of services is unnecessary , given the community's needs. Eliminate (D). This is the best answer choice by far, because it sticks closely to what the passage tells us about Newhouse. Passage: Newhouse contends that nonprofit hospital managers expand the quality and quantity of care beyond actual community needs. Choice (E): Newhouse believes this level of care is inappropriate when taking into account the community's requirements. It's a solid match and every other choice has been proven incorrect, so we'll stick with (E) as the best answer choice available. Now, was this analysis of answer choice appropriate ?

I hope that my explanation clarifies why (C) and (B) are not correct. In choice (E), "inappropriate" is a perfectly acceptable word for two reasons: The definition of "inappropriate" is "not suitable or proper for the circumstances." This word is often used in an individual, pejorative context (e.g., inappropriate behavior, an inappropriate statement at a team meeting). However, we could say that a company's projection of revenue for Q3 was inappropriate, given a recent contraction in their supply chain. We could also say that the selection of vacuum cleaners available in a local shop was inappropriate for the kinds of floors built in most houses surrounding the shop. In this answer choice, the circumstances are clearly described. The quality of nonprofit hospital care is inappropriate, given the actual needs of the community . This is a reasonable way to describe Newhouse' view of nonprofit hospital care, so (E) remains a fine answer choice. Question 3, Explained Here's where the highlighted text comes in: "Conversely, while profit motive is thought to encourage for-profit hospitals to attain efficient production, most theorists admit that obstacles to that efficiency remain. For-profit hospital managers, for example, generally work independently of hospital owners and thus may not always make maximum financial efficiency their highest priority." The author brings up these for-profit managers as an example of obstacles to efficient production in for-profit hospitals. Let's see which choice fits the author's statement and purpose. (D) is correct because it logically follows from what we know about for-profit hospital managers: They work independently of hospital owners, so the decisions of managers may not be in line with those owners. This split in priorities is brought up as an obstacle to efficiency, which suggests that the owners prioritize maximum efficiency while the managers may prioritize something else. Let's keep (D) around. (E) states that for-profit hospital managers want to achieve efficiency, but do not prioritize maximizing profits. But the author never tells us that the managers want to achieve efficiency. If anything, the passage states that managers (unlike owners) do not prioritize efficiency. Furthermore, when bringing up the managers and owners of for-profit owners, the author never mentions the level of profit that either group wants. This entire discussion is about maximizing efficiency, not maximizing profit. That's why we eliminate (E) and keep (D) as our best answer choice. I hope this helps... and that nobody needed to be hospitalized from exhaustion after reading it.

powellmittra · Answer

Can someone please explain how the answer to third question is D and not E? From the passage: "For-profit hospital managers, for example, generally work independently of hospital owners and thus may not always make maximum financial efficiency their highest priority."

3. The passage suggests which of the following about the managers mentioned in the highlighted text?
A. They have generally been motivated to streamline hospital services as a result of direct intervention by hospital owners.
B. They are more likely than managers of nonprofit hospitals to use unnecessary amounts of resources to provide services.
C. Their most important self-acknowledged goal is to achieve maximum financial efficiency so that hospitals show a profit.
D. Their decisions regarding services provided by their hospitals may not reflect hospital owners' priorities.
 E. They do not place a high priority on maximizing profits, despite their desire to achieve efficiency.

sevenplusplus · Answer

For Quetion 2, I chose C because the text says:
Newhouse (1970) contends that nonprofit hospital managers unnecessarily  expand  the quality and quantity of hospital care beyond the actual needs of the community

From keyword "expand" and a bit of inference from Para 1 (which talks about non-profit hospitals as less efficient than for-profit hospital), I thought C would be the answer.
(C) argues that nonprofit hospitals are likely to spend more to provide services that the community requires than for-profit hospitals are likely to spend
Can someone point the error in my reasoning?
Thanks.

maggie27 · Answer

6 mins.

1.A
2.B
3.D

Need discussion on Q2. I feel the word "inappropriate" is too harsh in option E! However I am not fully confident of option B as well because it talks more for the profit organizations rather than the non-profit ones .
Please provide the OA too.

MSGmat1 · Answer

I also feel the word 'inappropriate' in choice (E) is quite hard. I picked answer choice (C) and found (B) the next possible correct answer.  GMATNinja  could you please help.

guddo · Answer

1. Which of the following best describes the overall content of the second paragraph of the passage?

The second paragraph shifts from financial efficiency to social welfare efficiency and presents two opposing scholarly views (Newhouse vs Weisbrod) about nonprofit hospitals specifically. So it is about one aspect (social welfare efficiency) of one hospital type (nonprofit).

(A) It describes views concerning a particular aspect of one of the types of hospitals discussed earlier.

Yes. The “aspect” is social welfare efficiency, and the “type” is nonprofit hospitals.  This matches the paragraph exactly.

(B) It describes an additional benefit of one of the types of hospitals discussed earlier.

It includes a possible benefit (Weisbrod), but it also includes a criticism (Newhouse). So it is not mainly “a benefit.”

(C) It offers a potential solution to a problem inherent in the structure of the United States hospital industry.

No solution is proposed.

(D) It provides an additional contrast between the two types of hospitals discussed earlier.

The second paragraph does not contrast nonprofit vs for-profit; it debates nonprofit impact on social welfare.

(E) It describes one of the consequences of the character of the United States hospital market.

It is not describing a consequence of the market structure; it is summarizing conflicting scholarly views about nonprofit hospitals.

Answer: (A)

guddo · Answer

4. The passage is primarily concerned with

The passage summarizes what theoretical literature says about nonprofit vs for-profit hospitals, emphasizing that the literature gives conflicting views on (1) financial efficiency and (2) social welfare efficiency, especially for nonprofits.

(A) discussing the advantages of increased efficiency in a particular type of hospital

No. It does not argue for efficiency advantages; it reports debates about efficiency.

(B) assessing obstacles to efficiency in a particular type of hospital

It mentions obstacles (for both types), but it does not mainly assess them; it mainly reports conflicting theoretical views.

(C) describing conflicting assessments in the theoretical literature concerning particular types of hospitals

Yes. Both paragraphs explicitly frame “conflicting views” in the literature, first about financial efficiency, then about social welfare efficiency.  That is the central focus.

(D) challenging evidence used to support an argument advanced in recent theoretical literature concerning a particular type of hospital

No evidence is challenged; the passage is a neutral overview.

(E) emphasizing the advantages of one particular type of hospital over another type

It does not take a side; it presents pros and cons and competing theories.

Answer: (C)

guddo · Answer

5. The author mentions duplication between departments primarily in order to

The passage says nonprofit hospitals may be less financially efficient because they focus on quality over money and may be less vigilant about streamlining, “eliminating duplication between departments, for instance.” So duplication is an example of failing to streamline, which links to lower financial efficiency.

(A) illustrate an area in which nonprofit hospitals fail to provide adequate services

Duplication is about inefficiency, not inadequate service.

(B) describe the outcome of nonprofit hospitals' emphasis on maintaining managerial freedom

Managerial freedom is not discussed. The point is vigilance in streamlining.

(C) recommend a particular change that would allow nonprofit hospitals to streamline their services

The author is not recommending; it is just an example.

(D) suggest a way in which nonprofit hospitals may fail to achieve maximum financial efficiency

Yes. Duplication is given as a concrete example of not streamlining, which leads to using extra resources for the same output.  That is exactly why it is mentioned.

(E) explain why nonprofit hospitals may be able to provide more services than for-profit hospitals

Not the point; duplication is waste, not increased service.

Answer: (D)

The United States hospital industry is an unusual market in that

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

The United States hospital industry is an unusual market in that

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards