The Moderating Effect of the Social Deprivation Index (SDI) on the Relationship Between Hospital Strategy and Financial Performance

Abstract

Background: One of the major tenets of contingency theory is that the appropriate fit between strategy and environmental contingencies results in better financial performance. The purpose of this study was to investigate whether the Social Deprivation Index (SDI) moderates the association between hospital strategy and financial performance. Methods: We used longitudinal data from 2011 to 2016 from US urban general acute care hospitals. Four secondary datasets were used: the American Hospital Association (AHA) Annual Survey, Medicare cost reports (CMS), Area Health Resource File (AHRF), and the Robert Graham Center’s SDI. A generalized estimating equation (GEE) regression model was used to analyze the data. An interaction term was used to test the moderating effect of the SDI on the strategy–financial performance relationship. Results and Discussion: Our results showed that compared to hybrids, the SDI moderates the relationship between strategy and financial performance for cost leaders and hybrids. Increasing market social deprivation increases the hospital operating margin of cost leaders by 0.06%. Similarly, increasing levels of market social deprivation increases the hospital operating margin of hybrids by 0.06% (p < 0.05). As such, our results suggest that social deprivation may affect the viability of hospital strategy.