Trauma centers save lives, but they also expose hospitals to risk.

For that reason, many nonprofit hospitals choose not to operate them. You may think risk-averse hospital managers are to blame, but a new working paper by Tippie College of Business researchers challenges that assumption, pointing instead to donors.

The tension between mission and risk is not theoretical. In the early 2000s, a suburban Philadelphia trauma center shut down for nearly two weeks, not because demand disappeared, but because key specialists said they could no longer afford malpractice insurance. This situation, documented by the U.S. Government Accountability Office, demonstrated how socially valuable services are also often financially perilous.

That dilemma sits at the heart of the working paper, “The Source of Nonprofit Risk Aversion: Theory and Evidence from Hospitals,” by Tippie Assistant Professors Meghan Esson and Cameron Ellis, and Jingshu Luo of the University of Mississippi. Using hospitals across a multiple-state sample as a natural laboratory, the researchers asked a deceptively simple question: When nonprofit organizations shy away from risky but mission-critical investments, who is really driving the decision? 

What they found upends a long-held assumption in finance and health care policy.

“The canonical explanation is that nonprofit managers are more risk averse because they have to protect the mission,” Esson said. “What we found is that nonprofits rely heavily on donors, and we argue that donors themselves may be highly risk-averse and managers are responding to their preferences. 

That distinction matters, especially in health care, because these decisions have real consequences for patients and communities.”

At for-profit hospitals, investors spread risk widely. At nonprofits, donors typically give to one specific organization or area, such as endowing a trauma wing or securing naming rights, in the hopes of creating a legacy. It’s this personal tie that can make them leery of anything that could damage the hospital—or tarnish their name.

Donors don’t want their name associated with a highly publicized malpractice case, a service line viewed as “dangerous,” or—worst of all—a hospital that closes.

In that sense, the downside isn’t just financial, it’s social. 

For hospital managers, this can be a powerful constraint. Even if there’s a compelling case for opening a trauma center—lifesaving community value, more prestige, stronger physician recruitment— the decision still often comes down to donor comfort. A hospital can have the strategic will to expand risky, mission critical services, yet hesitate if the fundraising foundation is fragile.

The result is a paradox in which the same donors who want the hospital to “do more” are often also the reason it instead plays it safe.

“It’s not that managers don’t want to make these investments,” Esson said. “They’re responding to the people who provide the capital.”

Esson said what she hopes hospital leaders and board members take away from the research isn’t that risk should be avoided, but that it is already being priced—often quietly—through donor behavior.

“When decision-makers recognize how donor risk aversion shapes strategy, they can make more deliberate choices, like adjusting fundraising structures or risk management approaches to support bolder investment,” she said. “Understanding the true drivers behind decisions can lead to better outcomes for both the organizations and the communities they serve.”

This article appeared in the 2026 issue of Exchange magazine.