In a recent paper published in Behavioral Science & Policy, Matthew Manary, Richard Staelin, William Boulding, and Seth W. Glickman seek to explain key determinants of hospital financial health. The authors gathered data for a total of 265 acute-care hospitals in California from 2005 to 2011. The objective of their study was to look at the relationship between the characteristics of a hospital’s patient population and its quality of care to see if hospital financial health was a vital mediating factor.
Manary and co-authors looked at a host of variables on patient characteristics, such as ethnicity, age, and insurance type. Quality of care was measured through a composite measure that included data on patient experience, mortality, and readmission rates. Financial health was based on three variables: the ability to meet short-term obligations, gross operating margin (the ability to generate profits), and return on assets.
The results were clear. Financial health had a strong and substantial relationship to quality of care. The authors present some evidence that healthier finances may increase adherence to clinical guidelines and investments in medical equipment—both of which influence how well patients are treated. In addition, they found that the key driver of a hospital’s financial health is the so-called payer mix, which refers to the fraction of patients that are covered by a private health insurance.
This means that their original hypothesis about financial health being a mediating factor seems correct. Patient characteristics are related to financial health, which helps determine the quality of care. And the characteristic that matters most appears to be the share of patients with private coverage. Are there behavioral policy implications based on these findings? It certainly seems so. Perhaps the most relevant lesson concerns the use of economic incentives.