A Comparison Study of Urban and Small Rural Hospitals Financial and Economic Performance

Abstract

This study examines the performance of hospitals based on location (geographical region, rural, urban). In this study, recent data has been used to better understand the hospitals performance after the introduction of Prospective Payment System (PPS). The data set used by the study is much comprehensive in its coverage and information on a number of relevant variables. We have included a number of new economic and financial variables in the analysis and examined the effects of conversion of hospitals from not-for-profit to for-profit on hospital performance. Our empirical findings suggest that the size of hospitals, occupancy rate of hospital beds, ownership status, degree of competition faced in the market, teaching status, and measure of financial indebtedness of hospitals are significant determinants of hospital performance holding location constant. The empirical model also suggests that the relationship between hospital efficiency measure and its various determinants is actually non-linear in nature and therefore, it is important to adopt appropriate non-linear econometric models for empirical estimation of the performance function. Finally, our findings show that rural and small hospitals face significant factors that hinder its performance in comparison to urban and larger hospitals such as the lack of (DSH) payments and economy of scale due to their smaller size and lower proportion of Medicaid patients.