Public hospitals in peril: factors associated with financial distress

Abstract

As "safety net providers," public hospitals have played a major role in health care delivery, especially in serving the indigent and the uninsured. For several decades, public hospitals have been operating in a challenging environment, and some of them have experienced financial difficulties. The purpose of this study was to explore the organizational and environmental factors associated with public hospitals' financial distress. This study used a national sample of public hospitals based on longitudinal panel data from 1997 to 2009, resulting in a sample size of 7,257 hospital-year observations. The Altman Z-score method was applied to assess hospitals' financial condition. The significant findings from a random effects logistic regression model with state and year fixed-effects indicated that higher Medicare HMO penetration was associated with financial distress. Organizational variables such as health network, size, occupancy rate, and outpatient mix decreased the odds of financial distress; and membership in a multihospital system increased the odds of financial distress.