The Moderating Effect of Environmental Instability on the Hospital Strategy-Financial Performance Relationship

Abstract

The health care environment experiences rapid changes. It is essential to investigate how these changes can affect the viability of competitive strategies of hospitals. This study aimed to examine whether Porter's typology of cost leadership, differentiation, and hybrid are equally viable in different environments of the hospital industry.  

This study used longitudinal data from 2006 to 2016 of the US urban general acute care hospitals. Three secondary datasets, including the American Hospital Association (AHA) Annual Survey, Medicare cost reports (CMS), and Area Health Resource File (AHRF), were used. Multiple regression with an interaction term was used to test the moderating effect of environmental factors on strategy-financial performance relationship. The results showed that the cost leader hospitals outperform hybrid ones in an unstable environment compared to a stable environment. There was no performance difference between the cost-leaders versus differentiators and hybrids versus differentiators in a stable and unstable environment. Environmental factors seem to moderate the relationship between hospital strategic group membership and financial performance.