The Role of Organizational Slack in Buffering Financially Distressed Hospitals from Market Exits

Abstract

Financial distress is a persistent problem in the US hospitals leading many hospitals to close at an alarming rate over the past two decades. Given the potential adverse effects of hospital closures on healthcare access and public health, interest is growing in understanding more about the financial health of US hospitals. In this study, we set out to explore the extent to which relevant organizational and environmental factors potentially buffer financially distressed hospitals (FDH’s) from closure, and then even at the brink of closure, enable some of them to merge into other hospitals instead of closing. We test our hypotheses by first examining how factors such as slack resources, environmental munificence and environmental complexity affect the likelihood of survival against closing or merging into other organizations. We then test how the same factors affect the likelihood of merging relative to closing for FDH’s that undergo one of these two events. We find that different types of slack resources and environmental forces impact different outcomes, and we discuss the implications of our findings regarding financial distress for hospital stakeholders.