The impact of nonfinancial performance on the financial performance of the United States investor-owned multihospital systems

A review of relevant healthcare literature suggests that the financial performance of a hospital may be influenced by nonfinancial data. The focus of this dissertation is the financial performance of more than 1,000 U.S. hospitals members of the for-profit sector known as investor-owned multihospital systems. We examined the impact of eight nonfinancial performance measures representing outputs, efficiency, productivity and quality on their financial performance from 1999 to 2004. Our main objective is to validate the relevance of nonfinancial performance measures in determining hospital profitability which is measured by total margin, net operating margin and cash flow margin. Also, we identified some of the best financial performance models by combining the nonfinancial performance variables under study. Finally, we examined the long term impact of nonfinancial performance measures on financial performance in order to determine whether their long-term impact is greater than their short-term impact. Simple and multiple regressions results for total margin, net operating margin and cash flow margin support hypotheses that measures representing output, operational efficiency and quality are relevant in determining profitability. Moreover, our findings suggest that nonfinancial measures have a lasting impact on hospital profitability and may play an important role in the evaluation of the achievement of their objectives not only in the short-term but also in the long-term. Output measures, number of patients discharged adjusted by the case-mix-index and patient days adjusted by the case-mix-index, are closely linked to financial performance and contribute to explain profit margins as well as the cash flow of the hospitals under study. One of the main sources of earnings is the number of patients discharged however, in order to be profitable, hospitals need to keep under control their length of stay. Efficiency ratios provide some insight of the costs at which a given hospital provides services. Simple regressions results demonstrate that both, the number of full-time-equivalent employees per occupied bed, and the number of work hours per adjusted patient day may impact negatively hospital profitability. In models where both variables are combined, their tendency is to impact financial performance differently. This suggests that a highly labor intensity may reduce earnings or cash flow while an adequate staffing pattern tend to enhance hospital financial performance. Occupancy rate is positively related to total margin and to net operating margin. Neither productivity measures, the number of case-mix-adjusted discharges per bed in service and the number of case mix adjusted discharges per full-time-equivalent employee, are significant. All results demonstrate that the quality measure, JCAHO, is significant. It is positively related to each dependent variable under study. Our findings suggest that nonfinancial measures have a lasting impact on hospital profitability. However, based on tests results, we can not affirm that the long-term impact of the explanatory variables is greater than the short-term impact.