Jonathan Clark
w/Sara Singer & Nancy Kane
Harvard University
June 30, 2009
Supported by: The Commonwealth Fund
 Both met one or more safety net hospital (SNH) criteria
 Hospital 1
 266 beds
 Community hospital
 Good financial performance
 Hospital 2
 236 bed
 Community hospital
 Poor financial performance
 Closed 2008
 What explains this difference in performance?
 Three levels of nested factors:
 Policy and macro-economy (Friedman and Shortell, 1988)
 Markets and competition (Dranove, et al. 1993)
 Organization and management (Douglas and Ryman, 2003)
 What factors matter most for SNH financial
health?
 5 year panel of financial data for a sample of 156
hospitals meeting safety net criteria
 Longitudinal criteria based on share of support
provided to three vulnerable groups:
 Medicaid patients
 Minority patients
 Free care patients
 2003-2007 audited financials or IRS 990 filings
 Hospitals from 15 states in all 4 US census
regions
 Simultaneous nested ANOVA method (following
McGahan and Porter, 2002)
 Hierarchically nested fixed effects
 Assess the incremental explanatory power (change in R2) of
each factor in OLS regression model
 Analyzed variance in 4 outcome measures:
 Operating margin (Mean -0.026; SD 0.12)
 Days cash on hand (Mean 76.03; SD 101.07)
 Equity financing ratio (Mean 0.26; SD 0.44)
 Composite measure of financial health (Mean 0.00; SD
1.00)
Factors Influencing
Corresponding
SNH
Variables
Federal Policy
Year
and Macro-economy
Fixed Effects
State Policy
State
and Regulation
Fixed Effects
Market
Market**
Factors
Fixed Effects
Organizational
Hospital
Factors
Fixed Effects
(a) Working from top to bottom add each fixed effect to the OLS model
(b) Analyze change in R2 for each effect
**Markets defined using Health Referral Regions (HRR) available from The Dartmouth Atlas
Operating Margin
40.3
Remaining Variance (1 - R2 for full model)
27.3%
Hospital Fixed Effects
22.8%
8.6%
1.0%
Market Fixed Effects
State Fixed Effects
Year Fixed Effects
Note: State, market and hospital incremental R-squares are significant at p<0.01
Operating Margin
Days Cash
Equity
Financing Ratio
Composite
Financial Score
10.8%
15.9%
18.1%
46.7%
44.8%
22.4%
22.2%
Market
14.5%
14.7%
State
0.5%
0.2%
Year
Remainder
40.3
40.3%
Hospital
27.3%
37.3%
22.8%
8.6%
1.0%
11.3%
0.3%
Note: State, market and hospital incremental R-squares are significant at p<0.01
Operating Margin
Days Cash
Equity
Financing Ratio
Composite
Financial Health
10.8%
15.8%
18.1%
Remainder
50.1%
Hospital
40.3
48.8%
49.4%
34.8%
28.8%
19.8%
16.9%
11.3%
0.3%
14.5%
14.7%
0.5%
0.2%
15.3%
8.6%
1.0%
*Note: In markets with only one SNH, market effects cannot be distinguished from organization effects
Market
State
Year
 Start with what they do NOT mean:
 Do not mean policy and the macro-economy don’t
matter
 Do not mean markets don’t matter
 Results are consistent with management literature
(McGahan and Porter, 2002)
 Suggest leaders have managerial levers available to
improve SNH financial performance
 What are the levers available to SNH leaders?
 Subject of continuing study of SNH performance
 Management literature provides a starting place
 Governance Levers
 (Kane, Clark and Rivenson, 2009)
 Strategic Levers
 (Douglas and Ryman, 2003)
 Operational Levers
 (Tucker, 2007; Huckman, Staats and Upton, 2009)
 Cultural Levers
 (Kotter and Heskett, 1992)
Douglas, T. and Ryman, J. 2003. “Understanding competitive advantage in the general hospital industry:
Evaluating strategic competencies.” Strategic Management Journal, 24: 334-347.
Dranove, D., Shanley, M. and White, W. 1993. “Price and concentration in hospital markets: The switch
from patient driven to payer driven competition.” Journal of Law & Economics, 36: 179-204.
Friedman, B. and Shortell, S. 1988. “The financial performance of selected investor-owned and not-forprofit system hospitals before and after Medicare prospective payment.” Health Services Research,
23(2): 237–267.
Goes, J. B., & Zhan, C. 1995. “The effects of hospital–physician integration strategies on hospital financial
performance.” Health Services Research, 30: 507–530.
Kane, N., Clark, J. and Rivenson, H. 2009. “The internal processes and behavioral dynamics of hospital
boards: An exploration of differences between high- and low-performing hospitals.” Health Care
Management Review, 34 (1): 80-91.
Kotter, J. and Heskett, J. 1992. Corporate Culture and Performance. New York: Free Press.
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Porter, M. 1991. “Toward a dynamic theory of strategy”. Strategic Management Journal , 12:95-117.
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