Indicators for Predicting U.S. Publicly Traded For-Profit Hospital Financial Solvency

Administrators of U.S. hospitals and health systems must contend with the increasing pressures of changing economic conditions in response to the current regulatory changes in the health care industry. The detection of early warning signs of financial distress is imperative for management to be able to align strategic plans in advance to meet these challenges and prevent financial insolvency and bankruptcy. Research on financial and non-financial measures as indicators of financial solvency of U.S. hospitals is limited at the hospital system level; particularly U.S. publicly traded for-profit hospitals. The purpose of this nonexperimental quantitative study was to evaluate the effectiveness of financial and non-financial indicators in predicting financial solvency of U.S. publicly traded for-profit hospitals. Data was collected from annual audited financial reports electronically filed on Form 10-K by twenty-three U.S. publicly traded for-profit hospitals with the Security and Exchange Commission. The use of publicly accessible archival audited data ensures data continuity negating reliability and validity concerns. The criterion variable was the financial group status (solvent or insolvent) of the hospital. The independent predictor variables include financial indicators (e. g., two Altman Z-scores, two Financial Strength Indices, etc.) and non-financial indicators (e. g., Medicaid revenue percentage, uninsured revenue percentage, average length of stay, etc.). The sixteen indicators were analyzed for significance for predicting hospital financial solvency using logistic regression. Findings showed that the financial and non-financial independent predictor variables tested were not statistically significant in predicting hospital financial solvency. Research that indentifies insignificant measures of financial solvency in U.S. hospitals and hospital health systems may be useful for identifying the true solvency indicators for inclusion in a balanced scorecard as a hospital solvency management tool. Findings may also be useful to the SEC for setting policies on data availability and consistency requirements within 10-K filings to enhance investor decision-making. The Healthcare Negative Feedback System Model as the theoretical framework developed for this dissertation study is a significant contribution to the literature in the healthcare area.