Health Economics

German hospitals receive subsidies for investment costs by federal states. Theoretically, these subsidies have to cover the whole investment volume, but in fact, only 50–60% are covered. Balance sheet data show that public hospitals exhibit higher levels of subsidies compared with for-profit hospitals. In this study, I examine the sources of this disparity by decomposing the differential in a so-called facilitation ratio, that is, the ratio of subsidies to tangible fixed assets, revealing to which extent assets are funded by subsidies. The question of interest is whether the differential can be attributed to observable hospital-specific and federal state-specific characteristics or to unobservable factors.