[Experimentalist]

That's one example. There are 5,500+ hospitals in the US, so one example is hardly representative. There would be many more investments if it was more profitable.

As the link I posted states - many are not profitable and many have a very low profit margin. Higher profits would bring more entrepreneurs and investment.

[natrius]

You are assuming that because the industry has many unprofitable participants, there must be few new entrants. You're guessing. You haven't shown that there are indeed few new entrants, nor have you shown that low profit margins are the main factor that discourages them. Any industry that is as capital intensive as hospitals are will have relatively few new entrants, so a convincing argument of the causal relationship you're claiming will be difficult to make.

I mostly agree with you that healthy profits are desirable if we want to have an effective healthcare system, but I don't think hospital profit has much to do with it. The profit that healthcare technology companies and actual care providers make seems more important.

[Experimentalist]

Investors/entrepreneurs are attracted to businesses that show promise to be profitable, and turn away from making investment in unprofitable businesses.

This is a basic economics principle - I'm not assuming anything. I cited hospitals as an example to illustrate this, because there are many stats, such as what I posted (not an assumption, but a study), which show it's not a very profitable business (relative other businesses) - and btw, neither is health insurance.

If you disagree, then look it up in a basic economics or finance textbook, here are a few explanatons of the relationship of investment, profitability and ROI:

"In other words, profit-seeking businesses operating in the private sector of the economy will be prepared to go ahead with an investment if they believe that the project will over its projected lifetime yield a real rate of return greater than if the money tied up in an investment project had been invested in the next best alternative way."

Macroeconomics - Capital Investment http://tutor2u.net/economics/revision-notes/a2-macro-capital...

"The owners of a company and the company’s creditors share a similar goal: to increase wealth. They are thus very concerned about profitability in all phases of operations.

Creditors are specifically concerned that the company use its resources profitably so that it can pay interest and principal on its debt. Owners are concerned that the company be profitable so that stock values will increase. Company managers must show they can manage the owners’ investment and produce the profits that owners and creditors demand. Because top management must meet the profit expectations of company owners, it passes down to the lower levels of management those profitability goals, which are then spread throughout the company. All managers, therefore, are expected to meet profitability goals, which are often increased and tightened as each level of management seeks a margin of safety."

PDF - The Importance of Return on Investment: ROI http://media.wiley.com/product_data/excerpt/50/04712037/0471...