A market, operation, and mission assessment of large rural for-profit hospitals with positive cash flow

Abstract

Context: National benchmark data for 2002 indicate that large rural for-profit hospitals have a median cash flow margin of 19.5% compared to 9.2% for their nonprofit counterparts.

Purpose: This study aims to gain insight regarding the driving factors behind the high cash flow performance of large rural for-profit hospitals.

Methods: Using 3 annual periods of Centers for Medicare and Medicaid cost report data with the last fiscal year ending between September 30, 2002, and August 30, 2003, the study found a cash flow margin of 21.5% for the large rural for-profit hospitals. All these facilities were owned by hospital management companies. To assess their underlying market, operational, and mission factors, these hospitals were compared to a similar comparison group of large rural nonprofit hospitals that are system owned and have positive cash flows.

Findings: Using logistic regression analysis, the study found lower operating expense per adjusted discharge and salary expense as a percentage of total operating expense among large rural for-profit, system-owned hospitals with positive cash flows relative to nonprofits with similar traits.

Conclusion: Overall, the findings of this study reflect how these for-profit hospitals, which are owned by hospital management companies, focus on controlling their labor costs as well as operating costs per discharge in order to achieve a greater positive cash flow position.