Financial and organizational determinants of hospital diversification into subacute care

To examine the financial, market, and organizational determinants of hospital diversification into subacute inpatient care by acute care hospitals in order to guide hospital managers in undertaking such diversification efforts.

All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total).

Cross-sectional, time-series data were drawn from the American Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and longitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental variables.

The study is longitudinal, enabling the specification of temporal patterns in conversion, causal inferences, and the treatment of right-censoring problems. The unit of analysis is the individual hospital.

Significant differences were found in the average level of subacute care offered by investor-owned versus tax-exempt hospitals. After controlling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' activities in this market. Resource availability appears to expedite expansion into subacute care for both types of hospitals.

Investment criteria and strategy differ between investor-owned and tax-exempt hospitals.