Finding an economic niche for rural hospitals: An empirical analysis of market areas, patient flows, and policy considerations

This dissertation examines causes of poor financial performance in rural hospitals. This includes an analysis of the factors that result in rural residents choosing non-local hospitals, since such actions reduce hospital revenues, and an examination of the determinants of hospital service offerings. If rural hospitals do not provide the array of services that are desired by local residents, their profitability will suffer.;First, hospital market areas are constructed to identify the relevant product and geographic delineations. These market areas argue for the need to model the determinants of market share in a way that avoids the problem in traditional market delineations that rely on arbitrary assignment of the population to the nearest hospital provider. Such specification is likely to overstate the achievable market share, and err in predicting the number of viable hospitals in the market. These market areas are then used to examine whether delineation affects the size of the potential patient population and the number of competitors in a hospital's market area.;Second, a model of patient choice is developed to determine the market, patient, and hospital characteristics that determine the patient's choice of hospital, taking into consideration the fact that not every hospital is able to meet the needs of every patient. Small hospitals generally provide a narrower range of services and are thus unable to treat some local patients. Such information, regarding the services available at rural hospitals and the determinants of patient hospital choice, is useful in understanding the financial difficulties faced by small rural hospitals and how one might avoid them.;Finally, the effect of a hospital's choice of service offerings on its economic performance is examined, using alternative measures of their observed success. Several models examining the impact of a hospital's service configuration on its market share and profitability are developed to determine an array of services that rural hospitals can provide without increasing their risk of closure due to poor financial performance. Policy makers should consider these aspects of service configuration when altering the regulations rural hospitals face so they can better understand the implications of policy changes.