Hospital cost and efficiency: do hospital size and ownership type really matter?

The primary research question this study addresses is, do size and ownership type make a difference in the efficiency and cost results of hospitals in Washington State? A further question is, what factors might explain such differences? The data source is the hospital financial data reports Washington hospitals submit to the Washington Department of Health. The sample was restricted to not-for-profit and government-owned hospitals, given that these ownership types are predominant in Washington State, and there are only two investor-owned hospitals. The measures of efficiency and cost represent the generally accepted financial indicators derived from the healthcare financial management literature. Cost and efficiency in these hospitals are analyzed using five efficiency ratios and five cost measures. The results are significant for five of the ten measures studied. Measured by occupancy percentage, small and large not-for-profit hospitals appear to achieve higher efficiency levels than government-owned hospitals do, but the larger hospitals of both ownership types report greater efficiency than that achieved by smaller hospitals. In terms of costs, small, not-for-profit hospitals report comparable costs to those of the largest hospitals, likely because 70 percent of the small not-for-profits are critical access hospitals. These findings deserve further study on a regional or national level. A more scientific study of the efficiency and cost of hospitals by size and ownership type would be important to control for case mix, scope of services, and payer mix. Such studies can generate important findings about the relationship of hospital size and ownership type to efficiency and cost. Conducted on a national level, such studies would provide policymakers with the empirical data they need to make decisions regarding the types of hospitals to encourage or discourage in the future.

The early indicators of financial failure: a study of bankrupt and solvent health systems.

This article presents a series of pertinent predictors of financial failure based on analysis of solvent and bankrupt health systems to identify which financial measures show the clearest distinction between success and failure. Early warning signals are evident from the longitudinal analysis as early as five years before bankruptcy. The data source includes seven years of annual statements filed with the Securities and Exchange Commission by 13 health systems before they filed bankruptcy. Comparative data were compiled from five solvent health systems for the same seven-year period. Seven financial solvency ratios are included in this study, including four cash liquidity measures, two leverage measures, and one efficiency measure. The results show distinct financial trends between solvent and bankrupt health systems, in particular for the operating-cash-flow-related measures, namely Ratio 1: Operating Cash Flow Percentage Change, from prior to current period; Ratio 2: Operating Cash Flow to Net Revenues; and Ratio 4: Cash Flow to Total Liabilities, indicating sensitivity in the hospital industry to cash flow management. The high dependence on credit from third-party payers is cited as a reason for this; thus, there is a great need for cash to fund operations. Five managerial policy implications are provided to help health system managers avoid financial solvency problems in the future.