Determinants of Nonprofit Hospitals’ Operational and Financial Performance

• In Event: Issues in Not-For-Profit Hospitals

Abstract

Given rising healthcare costs, identifying the factors that can improve hospitals’ financial performance and quality of care is imperative. Models developed to evaluate the performance of for-profit (FP) organizations are not always applicable to nonprofits (NPs). This article identifies the characteristics that distinguish top-tier NP hospitals, generating valuable insights for hospital administrators and policymakers. We draw on two widely used organizational theories: the Resource-Based View and Resource Dependency Theory. We then apply stochastic frontier analysis to estimate the efficiency with which hospitals deploy the variables within their control to maximize outputs, allowing us to identify those that can serve as models for other NPs.
We find that board-of-directors dependence does not negatively affect financial performance or quality of care at NP hospitals, a concern raised in the extant literature. However, higher levels of grant support do negatively affect financial performance. While grantors might prefer to contribute based on spending rather than a return performance measure, grants do not generate income beyond their own expense and hence have a return on assets (ROA) close to zero, which may decrease overall ROA. Finally, an increased percentage of Medicare patients results in lower mortality rates but has a negative impact on financial performance as measured by ROA. Our stochastic frontier analysis indicates that at NP hospitals, inefficiency does not have a statistically significant impact on quality of care as measured by mortality rate, but it does significantly decrease ROA. Their community-benefit mission prioritizes high quality of care over profit maximization.

Authors

• Benedikt Markus Quosigk, Kennesaw State University

• Jomon Paul, Kennesaw State University

• Leo MacDonald, Kennesaw State University