CONSEQUENCES OF HOSPITAL FINANCIAL DISTRESS

This study identifies a group of financially distressed hospitals and tracks them over time to identify the consequences of their financial distress and the factors that may precipitate different events. Of 2,547 that supplied complete financial data to the American Hospital Association for the period 1983-1985, a total of 340 community hospitals met our definition for distress. The most striking finding is that 91.2 percent of hospitals that were distressed in 1983-1985 survived through the end of 1990. Distressed hospitals also had significantly higher rates of system acquisition and merger, as well as higher rates of system divesture. Growing competition in a market appeared to be a major factor in the closure of a distressed hospital. The results of this study suggest that financially distressed hospitals have a remarkable resiliency, that allows them to continue operation without dramatic change. This may be good news to local community officials concerned about maintaining financially weakened hospitals. Alternatively, it may be bad news if poor financial performance is a signal of unneeded capacity.