Trends in asset structure between not-for-profit and investor-owned hospitals

Non-operating revenue is an important source of funding for rural hospitals, especially those that are government-owned

PURPOSE

Non-operating revenue (NOR), derived from investments, contributions, government appropriations, and medical space rentals, can contribute to financial stability of hospitals by offsetting operating losses and improving profitability. NOR might benefit rural hospitals that often face intense financial pressures. However, little is known about how much rural hospitals rely on NOR and if certain organizational characteristics are associated with differences in NOR.

METHODS

Healthcare Cost Report Information System data from 2011 to 2019 were used to analyze sources of revenue among Critical Access Hospitals (CAHs) and Rural Prospective Payment System (R-PPS) hospitals through descriptive statistics and regression models. Reliance on NOR was measured by the percentage of total revenue from non-operating sources.

FINDINGS

Results indicate that both CAHs and R-PPS hospitals rely on NOR; however, CAHs have a higher percentage of total revenue derived from non-operating sources (3.2%) as compared to R-PPS hospitals (1.9%) (p < 0.001). Government-owned hospitals have significantly higher reliance on NOR than other ownership types. System affiliation also influences reliance on NOR. Lastly, results suggest that NOR may play a role in improving overall profit margins.

CONCLUSIONS

As rural hospitals disproportionately face challenges related to declining profitability and the risk for closure, they may rely on NOR to continue to strengthen financial performance and provide health care to their communities. However, NOR is not guaranteed, and reliance on NOR further reiterates the value of stable, adequate reimbursement to guard against fluctuations in NOR.

Taxes, bankruptcy costs, and capital structure in for-profit and not-for-profit hospitals

About 60% of the US hospitals are not-for-profit and it is not clear how traditional theories of capital structure should be adapted to understand the borrowing behavior of not-for-profit hospitals. This paper identifies important determinants of capital structure taken from theories describing for-profit firms as well as prior literature on not-for-profit hospitals. We examine the differential effects these factors have on the capital structure of for-profit and not-for-profit hospitals. Specifically, we use a difference-in-differences regression framework to study how differences in leverage between for-profit and not-for-profit hospitals change in response to key explanatory variables (i.e. tax rates and bankruptcy costs). The sample in this study includes most US short-term general acute hospitals from 2000 to 2012. We find that personal and corporate income taxes and bankruptcy costs have significant and distinct effects on the capital structure of for-profit and not-for-profit hospitals. Specifically, relative to not-for-profit hospitals: (1) higher corporate income tax encourages for-profit hospitals to increase their debt usage; (2) higher personal income tax discourages for-profit hospitals to use debt; and (3) higher expected bankruptcy costs lead for-profit hospitals to use less debt. Over the past decade, the capital structure of for-profit hospitals has been more flexible as compared to that of not-for-profit hospitals. This may suggest that not-for-profit hospitals are more constrained by external financing resources. Particularly, our analysis suggests that not-for-profit hospitals operating in states with high corporate taxes but low personal income taxes may face particular challenges of borrowing funds relative to their for-profit competitors.

Hospital Capital Investment During the Great Recession

Hospital capital investment is important for acquiring and maintaining technology and equipment needed to provide health care. Reduction in capital investment by a hospital has negative implications for patient outcomes. Most hospitals rely on debt and internal cash flow to fund capital investment. The great recession may have made it difficult for hospitals to borrow, thus reducing their capital investment. I investigated the impact of the great recession on capital investment made by California hospitals. Modeling how hospital capital investment may have been liquidity constrained during the recession is a novel contribution to the literature. I estimated the model with California Office of Statewide Health Planning and Development data and system generalized method of moments. Findings suggest that not-for-profit and public hospitals were liquidity constrained during the recession. Comparing the changes in hospital capital investment between 2006 and 2009 showed that hospitals used cash flow to increase capital investment by $2.45 million, other things equal.

Facing the recession: how did safety-net hospitals fare financially compared with their peers?

OBJECTIVE

To examine the effect of the recession on the financial performance of safety-net versus non-safety-net hospitals.

DATA SOURCES/STUDY SETTING

Agency for Healthcare Research and Quality Hospital Cost and Utilization Project State Inpatient Databases, Medicare Cost Reports, American Hospital Association Annual Survey, InterStudy, and Area Health Resource File.

STUDY DESIGN

Retrospective, longitudinal panel of hospitals, 2007-2011. Safety-net hospitals were identified using percentage of patients who were Medicaid or uninsured. Generalized estimating equations were used to estimate average effects of the recession on hospital operating and total margins, revenues and expenses in each year, 2008-2011, comparing safety-net with non-safety-net hospitals.

DATA COLLECTION/EXTRACTION METHODS

1,453 urban, nonfederal, general acute hospitals in 32 states with complete data.

PRINCIPAL FINDINGS

Safety-net hospitals, as identified in 2007, had lower operating and total margins. The gap in operating margin between safety-net and non-safety-net hospitals was sustained throughout the recession; however, total margin was more negatively affected for non-safety-net hospitals in 2008. Higher percentages of Medicaid and uninsured patients were associated with lower revenue in private hospitals in all years, and lower revenue and expenses in public hospitals in 2011.

CONCLUSIONS

Safety-net hospitals may not be disproportionately vulnerable to macro-economic fluctuations, but their significantly lower margins leave less financial cushion to weather sustained financial pressure.