A Market, Operation, and Mission Assessment of Large Rural For‐Profit Hospitals With Positive Cash Flow

Abstract

National benchmark data for 2002 indicate that large rural for-profit hospitals have a median cash flow margin of 19.5% compared to 9.2% for their nonprofit counterparts. This study aims to gain insight regarding the driving factors behind the high cash flow performance of large rural for-profit hospitals. Using 3 annual periods of Centers for Medicare and Medicaid cost report data with the last fiscal year ending between September 30, 2002, and August 30, 2003, the study found a cash flow margin of 21.5% for the large rural for-profit hospitals. All these facilities were owned by hospital management companies. To assess their underlying market, operational, and mission factors, these hospitals were compared to a similar comparison group of large rural nonprofit hospitals that are system owned and have positive cash flows. Using logistic regression analysis, the study found lower operating expense per adjusted discharge and salary expense as a percentage of total operating expense among large rural for-profit, system-owned hospitals with positive cash flows relative to nonprofits with similar traits. Overall, the findings of this study reflect how these for-profit hospitals, which are owned by hospital management companies, focus on controlling their labor costs as well as operating costs per discharge in order to achieve a greater positive cash flow position.