Revisiting ‘The Determinants of Hospital Profitability’ in Florida

Abstract

Objectives: To re-evaluate previously identified determinants of hospital profitability in the post-Patient Protection and Affordable Care Act years.

Data: Data were obtained from the Florida Uniform Hospital Reporting System, for years 2010-2014.

Study sample: Sample consisted of general acute care or teaching, privately owned, urban hospitals in Florida.

Study design: Longitudinal panel data design was used to assess the association of two pre-tax measures of profitability – operating margin and return on assets – and 20 predictor variables each year. Predictor variables were categorized as (1) organizational, (2) area-level, (3) managerial, (4) patient-mix, or (5) quality. A difference-in-difference model with hospital fixed effects was used to estimate the effects of the proposed predictor variables on the two measures of hospital profitability.

Principal findings: Results exhibited unexpected associations of hospital markup of charges, and the average age of a hospital’s equipment and facilities – negative and positive effects, respectively - with profitability. The results confirmed the negative association of debt utilization and bad debt expenses with profitability, and the positive association of labor yield and county-level hospital concentration. Bed size and system affiliation were also negatively associated with profits. The remaining characteristics, including the two quality measures (a Hospital Consumer Assessment of Healthcare Providers and Systems patient experience score and the hospital’s Magnet Recognition designation), were not significantly associated with profitability.

Conclusion: While many determinants of hospital profitability have remained unchanged since before the Patient Protection and Affordable Care Act, some have not, either reversing the direction or losing the significance of their association with profitability. The effects of healthcare reform on hospital viability warrant continued monitoring.