Community Orientation, Strategic Flexibility, and Financial Performance in Hospitals

Abstract

The objective of this study was to examine how community orientation and strategic flexibility affect accounting measures of financial performance in acute care hospitals. This cross-sectional study used organizational data from the American Hospital Association, environmental data from the Area Resource File, and financial data from the Healthcare Cost Report Information System. We tested our hypotheses on 1,779 hospitals using OLS regression models that controlled for organizational and environmental factors that might affect financial performance. The community orientation of a hospital had a negative impact on its short-term financial performance. However, the strategic flexibility of a hospital with regard to structure and resources was significantly and positively associated with hospital performance. Our findings are important to healthcare managers. Specifically, although a community orientation is thought to be essential for improving the health of populations, the healthcare market may lack clarity concerning the wants and needs of patients and payers to such a degree that this orientation does not result in improved short-term financial performance. In contrast, when a hospital maintains flexibility in its resource allocations and organizational structure, it can meet changing needs and uncertainties and thereby enhance financial performance.