Financial performance elements contributing to the technical efficiency of critical access hospitals: A logistic regression approach to categorizing efficient and ineffeicient facilities

Hospitals designated as rural closed at a disproportionally high rate from 1980 until 1999. In response to this emergent threat to healthcare access in rural settings, the Balanced Budget Act of 1997 made provisions for the creation of a new rural hospital---the Critical Access Hospital (CAH). The conversion of small rural facilities to critical access status and the associated cost-based reimbursement scheme significantly slowed the closure rate of rural hospitals. The pressing research question now is, "In what ways can the long-term viability of small hospitals be assured?";This study is a two-step design focused on a hypothesized relationship between technical efficiency of CAHs and a recently developed set of financial monitors for these entities. The goal was to identify the financial performance measures associated with efficiency. Step I used the programming technique Data Envelopment Analysis (DEA) to differentiate efficient from inefficient facilities within a data set of 183 CAHs. Determining DEA efficiency is an a priori categorization of hospitals in the data set as efficient or inefficient .;In Step 2, DEA efficiency is the categorical dependent variable (efficient = 0, inefficient = 1) in the subsequent binary logistic regression model. A set of six financial monitors selected from the array of 20 measures are the logistic regression independent variables. A binary logistic regression application was used to test the Null Hypothesis that recently developed CAH financial indicators have no predictive value for categorizing a CAH as efficient or inefficient, i.e., there is no relationship between DEA efficiency and fiscal performance.;The DEA application identified 18 facilities as efficient with 165 as inefficient. The binary logistic regression procedure did correctly categorize the CAHs as efficient or inefficient, although categorizing was weak. The null hypothesis was rejected as three of the original financial monitors were retained in the model---cost-to-charge ratio, FETs per adjusted occupied bed, and average census. Results were discussed in terms of administrative actions having the potential to improve efficiency. Also, DEA efficiency was argued to be a construct which should be used in future research to identify additional CAH performance measures associated with technical efficiency.