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

To understand the important dimensions of the financial and operational performance of non-profit hospitals.

Secondary data for non-profit US hospitals between 1996 and 2004.

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.

Financial ratios were created using cost report data from HCRIS 2552-96 available from the Centers for Medicaid & Medicare Services (CMS).

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.

The importance of capital structure highlights a significant shift in the organization of the non-profit hospitals' finances.