Profit Pressures in Nonprofit Care: Executive Responses to Financial Incentives in Hospitals

This paper examines how executive backgrounds shape organizational responses to financial incentives in mission-driven settings. Using U.S. nonprofit hospitals, I study whether clinically trained executives influence behavior under pay-for-performance policies. Hospitals led by non- clinical executives respond more strongly to quality-based financial incentives than those led by clinically trained leaders. This difference reflects active management rather than organizational objectives and operates through two mechanisms: clinically trained leaders prioritize patient- centered care and possess expertise that lowers the cost of quality improvements. These findings highlight the role of leadership in firm objectives and suggest incentive design should account for managerial heterogeneity.