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Diversification in the hospital industry
1Department of Health Services Management and Leadership, George Washington University, Washington, DC, USA. hsmsre@gwumc.edu
Journal of Health Care Finance
|November 30, 2010
Summary
Hospitals that diversify services, like bariatric surgery, improve their financial performance. This enhanced financial position enables further diversification, illustrating a hospital life cycle of growth and strategic adaptation.
Area of Science:
- Healthcare Management
- Health Economics
- Organizational Behavior
Background:
- Hospitals exhibit cyclical behavior, including diversification and divestiture.
- Understanding the hospital life cycle is crucial for strategic planning and financial stability.
Purpose of the Study:
- To investigate the relationship between hospital diversification and operating ratio.
- To examine the impact of external factors like government planning and competition on hospital strategy.
Main Methods:
- A two-stage least squares (TSLS) framework was employed to model joint dependence.
- Data from 172 hospitals between 2002-2007 were analyzed.
- The study considered management's risk-reward attitudes.
Main Results:
- Institutional diversification positively correlates with a better financial position.
- Improved operating profits facilitate further diversification efforts.
- Growth in specialized services like bariatric surgery and sleep clinics was observed.
Conclusions:
- Hospital diversification is a viable strategy for enhancing financial performance.
- A feedback loop exists where financial gains from diversification enable further strategic expansion.
- External planning and competition influence hospital diversification strategies.
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