THE DETERMINANTS OF HOSPITAL PROFITABILITY

Although numerous studies related to hospital costs and financial condition have been conducted, no studies have specifically attempted to identify the underlying determinants of hospital profitability. If these factors are identified, hospital executives can focus their efforts on those aspects of operations that most affect profitability, and public policymakers can gain insights into the potential effects of alternative policy decisions on hospital financial viability. Our study uses multiple regression analysis with 22 hypothesized profitability determinants as independent variables and five profitability measures as dependent variables. The data set consists of 1989 data from 169 investor-owned and private not-for-profit general acute care hospitals in the state of Florida. The results provide evidence that selected managerial and patient-mix variables are predictors of profitability. Structural factors that are beyond the control of managers (organizational and community characteristics) appear to be less important in influencing profitability. These findings may be viewed positively by hospital executives since it appears profitability is not dictated by organizational or market factors but more strongly influenced by factors that, to some extent, can be influenced by hospital policies and practices.