New prediction model shows increased financial distress for for-profit hospitals
Newswise – An analysis of national data from all U.S. hospitals estimated the average likelihood of hospital financial distress in 2020 rose to 28.5%, only about half a percentage point higher than the previous year. But more importantly, the estimated financial distress of for-profit hospitals rose to 39.1% in the tumultuous year of the coronavirus outbreak, about seven percentage points higher than in 2019.
The analysis co-authored by researchers at Johns Hopkins Carey Business School indicates that these results are noteworthy because for-profit hospitals provide a large portion of specialty health care services in the United States, especially to rural communities. Any increase in financial distress — the inability to meet financial obligations — could therefore compromise many Americans’ access to specialty care, including psychiatric care and acute long-term care.
Since 2007, the number of for-profit hospitals in the United States has increased dramatically. Market discipline ensures that these hospitals use their available resources efficiently. But when institutions reach the limit of their resources, they are less able to mitigate unforeseen shocks, say the researchers.
To produce their estimates, the researchers developed a prediction model based on American Hospital Association annual survey data from the 2010s and Safegraph smartphone mobility data for 2020.
“We found that our prediction model performed very well against the actual AHA data. When we estimated the model with the actual AHA and mobility data for 2018 and 2019, we found that they matched pretty closely for those years,” says co-author Alessandro Rebucci, associate professor of finance at Johns Hopkins Carey Business School.
Hospital financial and operational data is typically only available at annual intervals, making it less useful for predicting financial risk in real time, Rebucci says. Official AHA figures for 2020 are just starting to be released and won’t offer the full picture for this year until the first quarter of 2022.
Rebucci adds, “With the predictions provided by our model on the financial health of hospitals, managers and policy makers would be better equipped to monitor performance in near real time as large shocks materialize and then take action to mitigate risk. or calibrate support policy actions, particularly to vulnerable areas”.
The analysis, “The Financial Fragility of For-Profit Hospitals: Evidence from the COVID-19 Pandemic,” is a working paper from the National Bureau of Economic Research. Along with Rebucci, the co-authors are Johns Hopkins Carey Business School faculty members Ge Bai, Phillip Phan, Luis Quintero and Xian Sun, and International Monetary Fund research fellow Daniel Jiménez.
The research was supported by Johns Hopkins Carey Business School and the Hopkins Business of Health Initiative. The initiative is a new collaboration between the Bloomberg School of Public Health at Johns Hopkins University, the Carey Business School, the School of Medicine and the School of Nursing that integrates research, practice and policy to improve the productivity of the country’s health system.