On the Determinants and Consequences of Hospitals Outsourcing Decisions – Implications of Outsourcing Non-clinical Services on Hospitals Financial Performance

• In Event: Managerial and Financial Accounting

Abstract

This paper investigates the dynamic nature of hospitals outsourcing decisions by examining the determinants of hospitals decisions to outsource non-clinical services and its effects on hospitals contemporaneous and future financial performance. Faced with increased competition and regulatory pressures to reduce costs of health care, U.S. hospitals strive to control costs while maintaining higher service levels. Both theory and practice suggest that outsourcing of non-core business functions can affect firms’ financial performance through reduction in costs or improved strategic position. We empirically examine the cost pressure and task complexities as determinants of hospitals outsourcing decision and whether or not such outsourcing of non-clinical services improves the financial performance for a sample of California short-term general hospitals. We examine and control for institutional, ownership and other control variables that affect the outsourcing decision and its effects on financial performance. The overall results indicate that the managerial outsourcing decision has a positive and significant influence on hospitals financial performance. In particular, we find that the extent of outsourcing of non-clinical services enhances the current performance of our sample hospitals. Whereas the positive relation between the rural factor and profitability is consistent with prior literature, the result for the performance consequences of outsourcing is somewhat surprising. Additionally, the ownership structure of for-profit hospital adversely affects the profitability performance. This paper contributes to accounting research by examining the consequences of outsourcing decisions on hospitals financial performance. Specifically, the current study expands and complements the existing literature on hospital outsourcing, as it uses a comprehensive data sample with objective performance metrics. The results have implications for managers, standard setters and academicians.

Authors

• Amal A Said, University of Toledo

• Kathryn Chang, University of Toledo

• Hassan Hassab-Elnaby, University of Toledo