A Case Study: Organizational and Environmental Factors Associated with Alabama Rural Hospitals’ Reported Levels of Financial Distress

Abstract

Community hospitals are major forces in theirs geographic economies by providing jobs, consuming a high amount of locally produced goods and services, and making the overall community a more desirable place to live and conduct business. For example, it is not uncommon for a rural hospital to employ as high as 4 percent of a county’s total workforce. Despite the importance of rural hospitals to their communities, they continue to close at an alarming rate. As such, it is important to identify the internal and external factors that may contribute to rural hospitals’ financial duress, which may lead to closure or other market exit strategies.

This study examined the financial condition of Alabama’s operating rural, acute-care hospitals from 2010 to 2014 (5 years) to identify organizational characteristics and environmental factors that may affect the hospital experiencing financial distress.

We found that a majority of Alabama’s rural hospitals reported some level of concern regarding their financial sustainability due to distress and there was a significant association between ownership and hospital age. Hospitals with a for-profit ownership have a significantly higher odds ratio of being in financial distress when compared with not-for profit hospitals. There was also a significant relationship between a hospital’s age and financial distress.

By identifying the two variables that were significantly associated with financial distress, (ownership and hospital age), this study showed that there is sufficient support to recommend that these factors be considered by healthcare managers and financial professionals working in this sector.