title: Public hospitals in financial distress: Is privatization a strategic choice?
abstract: BACKGROUND
  As safety net providers, public hospitals operate in more challenging environments than private hospitals. Such environments put public hospitals at greater risk of financial distress, which may result in privatization and deterioration of the safety net.
  
  
  OBJECTIVE
  The purpose of this study was to investigate whether financial distress is associated with privatization among public hospitals.
  
  
  METHODS
  We used panel data merged from the American Hospital Association Annual Survey, Medicare Cost Reports, Area Resource File, and Local Area Unemployment Statistics. Our study population consisted of all U.S. nonfederal acute care public hospitals in 1997 tracked through 2009, resulting in 6,426 hospital-year observations. The dependent variable "privatization" was defined as conversion from public status to either private not-for-profit or private for-profit status. The main independent variable, "financial distress," was based on the Altman Z-score methodology. Control variables included market and organizational factors. Two random-effects logistic regression models with state and year fixed-effects were constructed. The independent and control variables were lagged by 1 year and 2 years for Models 1 and 2, respectively.
  
  
  RESULTS
  Public hospitals in financial distress had greater odds of being privatized than public hospitals not in financial distress: (OR = 4.53, p < .001) for Model 1 and (OR = 3.05, p = .001) for Model 2.
  
  
  CONCLUSIONS
  Privatization eases access to resources and may provide financial relief to government entities from the burden of continuously funding a hospital operating at a loss, which in turn may help keep the hospital open and preserve access to care for the community. Privatizing a financially distressed public hospital may be a better strategic alternative than closure. The Altman Z-score could be used as a managerial tool to monitor hospitals' financial condition and take corrective actions.
authors.affiliation: Zo Ramamonjiarivelo, PhD, MBA, is Assistant Professor, Department of Health Administration, Governors State University, University Park, Illinois. Email: zramamonjiarivelo@govst.edu. Robert Weech-Maldonado, PhD, MBA, is Professor and L.R. Jordan Endowed Chair of Health Administration, Department of Health Services Administration, University of Alabama at Birmingham. Larry Hearld, PhD, MSA, MBA, is Assistant Professor, Department of Health Services Administration, University of Alabama at Birmingham. Nir Menachemi, PhD, MPH, is Professor and Doctoral Program Director, Department of Health Care Organization and Policy, University of Alabama at Birmingham. Josué Patien Epané, PhD, MBA, is Assistant Professor, Department of Health Care Administration and Policy, University of Nevada, Las Vegas. Stephen O'Connor, PhD, MBA, MPA, FACHE, is Professor, Department of Health Services Administration, University of Alabama at Birmingham.
authors.forename: Zo
authors.initials: Z
authors.lastname: Ramamonjiarivelo
authors.forename: Robert
authors.initials: R
authors.lastname: Weech-Maldonado
authors.forename: Larry
authors.initials: L
authors.lastname: Hearld
authors.forename: Nir
authors.initials: N
authors.lastname: Menachemi
authors.forename: Josué Patien
authors.initials: JP
authors.lastname: Epané
authors.forename: Stephen
authors.initials: S
authors.lastname: O'Connor
mesh_terms: D004469:Economics, Hospital; D006779:Hospitals, Public / Q000191:economics* / Q000458:organization & administration; D008137:Longitudinal Studies; D011332:Privatization / Q000191:economics*