Predictors of Hospital Profitability: A Panel Study Including the Early Years of the ACA

Abstract

Purpose: To assess the internal and external environmental factors that affect variations in hospital profitability. We are especially interested in examining the impact of the ACA regulations.

Methods: We used an unbalanced panel of 1,908 metropolitan U.S. hospitals in the 48 contiguous states during the period 2000-2015, resulting in 28,888 observations. The primary sources of data were Medicare Hospital Cost Reports and the American Hospital Association Annual Survey of Hospitals. Fixed-effect regression with correction for serial correlation, using total margin and operating margin as dependent variables, was employed.

Results: Hospital profitability was positively associated (at p < 0.05) with for-profit ownership, market power, hospital size, availability of high technology services and occupancy rate. Profitability was negatively associated with average length of stay and county unemployment rate.  There was no discernible temporal trend. However, total margin spiked downward in 2008 during the Great Recession but recovered afterwards.  The implementation of the Affordable Care Act was associated with an improved operating margin in states that expanded their Medicaid programs but not in other states.

Conclusions: Competitive advantages such as size, market power and availability of high-technology services are associated with higher hospital profitability. External market events such as the Great Recession can decrease hospital profits. For-profit hospitals tend to be more profitable than not-for-profit hospitals. The implementation of the ACA had only a one-time positive impact on operating margin.