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Related Experiment Videos

Hospital free cash flow.

R T Kauer1, J B Silvers

  • 1Weatherhead School of Management, Case Western Reserve University, Cleveland, OH.

Health Care Management Review
|January 1, 1991
PubMed
Summary
This summary is machine-generated.

Hospital managers face challenges admitting suboptimal investments, which impact returns and cash flow. This study examines hospital efficiency and free cash flow implications for capital markets.

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Area of Science:

  • Health Economics
  • Financial Management
  • Healthcare Administration

Background:

  • Suboptimal hospital investments can lead to poor financial returns and reduced future cash flow.
  • Inappropriate use of free cash flow (FCF) in hospitals can result in significant transaction costs.
  • Understanding capital-market conditions is crucial for hospital financial health.

Purpose of the Study:

  • To examine the relative efficiency of investor-owned versus tax-exempt hospitals in the hospital services market.
  • To apply free cash flow theory to analyze hospital capital-market conditions.
  • To investigate the implications of free cash flow for risk, capital-market efficiency, and the cost of capital for tax-exempt institutions.

Main Methods:

  • Utilizing free cash flow theory as the analytical framework.

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  • Examining competitive conditions within the hospital industry.
  • Comparing capital-market norms with the cost of capital for tax-exempt hospitals.

    • Main Results:

    • Investor-owned and tax-exempt hospitals exhibit differing efficiencies in the product market.
    • Suboptimal investment decisions and FCF mismanagement negatively impact hospital financial performance.
    • FCF has significant implications for risk, capital market efficiency, and the cost of capital.

    Conclusions:

    • Hospital managers must address suboptimal investments to improve financial outcomes.
    • Effective management of free cash flow is essential for mitigating transaction costs and enhancing capital market performance.
    • The study provides insights into the financial dynamics and competitive landscape of the hospital industry.