Determinants of Severe Financial Distress in U.S. Acute Care Hospitals: A National Longitudinal Study

Background: Financial sustainability remains a central challenge for U.S. hospitals as rising operating costs, shifting federal reimbursement, and policy uncertainty intensify economic pressures. This study estimates the prevalence and recent changes in financial distress among U.S. short-term acute care hospitals. Methods: We conducted a national longitudinal analysis of all U.S. short-term acute care hospitals from 2021 to 2023 using financial and operational data from Medicare cost reports linked with community-level data from the American Community Survey. Financial distress was measured using the Altman Z-score, with severe distress defined as Z ≤ 1.8. Logistic regression models were used to identify organizational, operational, and market characteristics associated with distress. Results: The proportion of hospitals classified as severely financially distressed increased from 18.6% in 2021 to 22.0% in 2023. Operating margins and returns on assets declined significantly over the study period, while mean Z-scores showed a modest but non-significant downward trend. In adjusted models, urban hospitals had higher odds of distress (OR 1.27, 95% CI 1.15-1.40, p < 0.001), as did hospitals with longer average lengths of stay (OR 1.07 per day, 95% CI 1.04-1.09, p < 0.001) and higher debt-to-equity ratios (OR 1.05 per unit, 95% CI 1.05-1.06, p < 0.001). Higher occupancy rates were protective (OR 0.31, 95% CI 0.25-0.40, p < 0.001). Larger market population was also associated with increased distress risk (OR 1.61, 95% CI 1.21-2.14, p = 0.001), while other market characteristics were not significant. Conclusions: Financial distress remains widespread and appears to be increasing among U.S. acute care hospitals. Operational efficiency, capital structure, and local market scale are key drivers of financial vulnerability, highlighting the need for targeted strategies to strengthen hospital resilience and preserve access to essential acute care services.