Factor analysis of financial and operational performance measures of non-profit hospitals

Objective: To understand the important dimensions of the financial and operational performance of non-profit hospitals. Data Source: Secondary data for non-profit US hospitals between 1996 and 2004. Study Design: I use iterative principal factor analysis of hospitals' financial and operational ratios for each year of the study. For factor interpretation, I use oblique rotation. Data Collection/Extraction Methods: Financial ratios were created using cost report data from HCRIS 2552-96 available from the Centers for Medicaid & Medicare Services (CMS). Principal Finding: I identify five factors--capital structure, profitability, activity, liquidity, and an operational factor--that explain most of the variation in the performance of non-profit hospitals. I also find that capital structure is more important than profitability in determining the performance of these hospitals. Conclusion: The importance of capital structure highlights a significant shift in the organization of the non-profit hospitals' finances. Keywords: Non-profit hospitals, financial ratio, factor analysis.
Private non-profits accounted for approximately 60 percent of hospital facilities and 70 percent of hospital beds in the United States in the year 2000. (1) They are also highly dependent [...]